Small financial emergencies can happen to anyone. Your car breaks down, your computer suddenly crashes, or your roof begins leaking, so you need a small chunk of money quickly but you are smack dab between paydays. Payday loans are a viable financial option for some people. Payday loans are basically small, short-term loans just about anyone can get that allow you to borrow small amounts of money to tide you over until that next paycheck.
Once you are approved for a payday loan, the funds will be deposited into your bank account for you to spend as you need. Payday loan lenders require borrowers to either write a post-dated check or give the lender their bank account information. Then they simply cash the check or withdraw the money from your account when you receive your next paycheck.
When Should You Get a Payday Loan?
1. When you have a bad credit history.
Payday loan lenders don’t run your credit report. Anybody older than the age of 18 who has checking account and a job with a regular paycheck is eligible to receive a payday loan.
Lenders will, however, ask for your social security number and run it through a database to see if you have other outstanding payday loans. Some states limit how many payday loans you can have open at one time.
2. When you need money in a hurry.
Payday loans are processed very fast, so you can have the funds within just a few hours. Most financial institutions take several days just to look at a loan application.
3. When you want to avoid bounced check fees.
A payday loan might be the solution if your checking account is low and you’re in danger of bouncing a check. Keep in mind that a payday loan only benefits you in this situation if the loan fees will cost you less than the bank’s insufficient fund fees.
When Should You NOT Get a Payday Loan?
1. When you want to avoid paying high interest rates.
Payday loans are significantly more expensive than the other type of loans. The APR on these loans runs about 400% but can climb as high as 5,000%. That is why it is so important that you pay off the entire loan by its maturation date.
2. When you can’t pay the loan back quickly.
Depending on your repayment plan, you’ll have to pay back the balance of the loan plus interest in 14 to 30 days. Some states allow extensions on payday loans, but you’ll have to pay a hefty fee for the extension. If you have to roll the loan over a few times, you could easily wind up paying more in fees than you borrowed for the initial loan.
3. When you need a large amount of cash.
Another drawback to payday loans is that you can only borrow smaller amounts. The maximum amount you can borrow varies according to lender and your state of residence, but you can usually borrow no more than $500 to $1,000.
Payday loans might be a viable option for emergency situations, but only if you are absolutely sure that you can pay the loan back on time. If you’re not sure that you’ll be able to pay back the loan in full, try to find an alternative option, such as a credit card with low interest rates.