Tragedy can strike anytime, anywhere. A family member falls ill, resulting in unplanned travel expenses as you race back home to be by their side. Your car breaks down on the side of the road, leaving you with no way to get to work despite the fact that you have no sick days left.
Whatever the situation, you find yourself in a financial bind, unsure how to make ends meet. Could a payday loan be the answer, or will it just make the situation worse? There is no simple answer to that question. Here’s what you should know about payday loans so you can decide for yourself.
“Payday Loans” Defined
Payday loans—also known as payroll loans, salary loans, small dollar loans, cash advance loans, check advance loans, and deferred deposit loans—are small personal loans that a person takes out in order to deal with an unexpected emergency while they’re in between paychecks. Because they’re intended to help with sudden emergencies, most payday loans have a limit of around $500, but that isn’t always the case.
Payday loans are often highly regulated, with the terms and laws surrounding them varying from state to state and country to country. In general, though, the idea behind paydays loans is to provide borrowers with fast financial assistance in return for quick repayment with interest.
Pros & Cons of Payday Loans
Payday loans offer a lot of benefits for individuals who find themselves needing to come up with a significant amount of money in a short amount of time. Applying for a payday loan is fast, easy, and efficient, with most lenders requiring no credit checks or collateral. This makes payday loans accessible even to those with modest means or poor credit histories.
However, due to payday loans’ purpose as short-term solutions, they generally come with higher interest rates than other kinds of loans. When repaid in a timely manner, this isn’t an issue. But when borrowers miss or delay repayment, this can result in their debt growing very large, very fast.
When to Take a Payday Loan
Can payday loans help you make ends meet? Absolutely. When you’re in a tight spot and need an advance on your next paycheck to help you get essential groceries or medicine, keep your utilities from getting shut off, or ensure you have a working car so you can get to work the next day, payday loans can be a godsend. Used carelessly, though, payday loans end up leaving you in a worse situation than you started in, just like any other kind of loan.
When considering whether or not to take out a payday loan, it’s important to ask yourself two questions: 1. Does my current situation represent an emergency in which I need money this very instant? 2. When I receive my next paycheck, will I be in a position to completely repay this loan immediately? If the answer to either of these questions is “no,” then a payday loan might not be your best option.