Is it Ever a Good Time
for a Payday Loan?

For many people, getting a payday loan is a scary prospect and for good reason. Payday loans can start people down a slippery slope by allowing them to spend money before it is earned. This can lead to increasing debts, missed payments and a diminishing credit score.

Even though payday loans can cause more trouble than they are worth in the hands of a consumer who does not behave responsibly, they do have a place in today’s society. Just like a credit card where abuse can also lead to ballooning debts and a low credit score, the use of a payday loan to handle immediate financial obligations may be the best alternative.

As with using a credit card, using a payday loan requires understanding and discipline. Consumers have to realize that any spending done on credit in the present, which is essentially what a payday loan is, must be accounted for in the future. Eventually all debts will have to be settled.

When a Payday Loan May Be the Best Solution

Payday loans have the benefit of being quickly procured with few obstacles. Unlike other means of financing, payday loans can give consumers cash in hand immediately. That makes the payday loan a good solution for an immediate financial obstacle.

Determining whether or not to get a payday loan is typically a simple proposition. Payday loans should only be used when there is an immediate bill where not paying the bill on time will result in a cost that is greater than the fees associated with the loan. Put simply, a payday loan will generally cost $30-50. In order for it to make sense to take out the loan, it should be cheaper to pay back the loan plus the fees than it is to be late on the payment.

For example, many apartment leases state that late payments will be charged a late fee if payment is received after a certain date in the month. We’ll assume a late fee of $150. If the payment is due at the start of the month and a renter will not have the necessary cash until a few days into the month, then it makes sense for them to get a payday loan to cover the payment. Then when it is time to pay off the loan, they will only have to pay back the amount of the loan plus $30-50 instead of the apartment payment plus $150.

This logic could also apply to fees assessed to bounced checks or other situations where the fees associated with delaying payment are more costly than the fees associated with the payday loan.

Also using this logic, it is apparent when a payday loan is not a good idea. Payday loans should never be used to purchase anything that is not an urgent need. If an item is something that can be put off and purchased after a consumer has the money to do so; it should be.

Consider Hidden Costs When Considering a Payday Loan

When considering getting a payday loan, there are some instances where there are more variables involved than tangible fees. As stated above, a payday loan may be the best alternative when there are fees involved that are greater than the cost of the loan. This does not take into account of one other major results of making a late payment.

In some cases there is a bigger cost to making a late payment than simply being assessed a fee. If the debtor also reports the delinquent payment to the credit bureaus, the delinquent payment will end up on the consumer’s credit report and negatively affect their credit score. Low credit scores make it difficult or even impossible to get a loan or even land a desired job. Because of this and providing that the consumer will have the money to pay back the payday loan, getting a payday loan to prevent a late payment may still be a good idea even if there are not late fees involved.

Avoid the Payday Loan Cycle

Regardless of the reason for getting a payday loan, a payday loan should always be thought of as a quick and temporary fix for the larger problem of not having enough money to fulfill obligations. Payday loans should serve as a wake up call to any consumer who has to use one. They indicate that the consumer needs to start managing their finances so they do not have use for a payday loan in the future.

If a consumer finds themselves in a cycle of constantly getting payday loans in order to make ends meet, then they would be well served to take a close look at their finances and determine why they do not have money when they need it. They may end up being able to right the ship by simply avoiding luxury items and bargain shopping for a while or they may need to take more drastic steps to reduce debts such as opting for more a more practical car or a smaller home. They may also need to look into credit counseling or debt consolidation services. Regardless of the method they use, making changes to avoid using payday loans will result in a better financial situation in the future.