Should You Get a Payday Loan?
Payday loans get a lot of negative attention, and much of it is rightly deserved. However, for the person with a bad credit history and no other way to get extra funds, they can be a lifesaver. It’s important to understand how payday loans work and when it’s okay to get one.
What are Payday Loans?
Chances are you know the basic concept of a payday loan, but you may have forgotten what they are really meant for. A payday loan is a short-term loan designed to provide temporary funds at a higher interest rate until it can be paid back.
Most payday loans are set up to be paid back in one or two installments, starting with your next payday. You’re charged an exorbitant interest rate because you have bad credit and are a high risk for not paying back the loan.
The danger with these payday loans is the person can’t really afford them. They don’t have enough money from their income, and they must use a portion of it to pay back the loan which leaves them nothing to live on.
Are Payday Loans Ever a Good Idea?
You can find all sorts of information online about why you should never get a payday loan. The outlandish interest rates and the strict payment schedule make them a bad idea most of the time. However, there are times when a payday loan may be necessary and not such a bad idea.
A prime example of when you may benefit from a payday loan is if your car breaks down. You need to get it fixed to get to work, but you don’t have the money right now and no credit. You know you have enough coming in your next paycheck to cover the repairs, but you can’t wait until then. If you have no other option, a payday loan might be the way to go. You can get the car fixed now and use the money from your income to pay the loan back instead of using it directly on the car repairs.
Some payday companies offer installment or personal loans at a lower interest rate once you’ve been approved for a payday loan and paid it back. You gain credit with them for making timely payments, which will help you qualify for a cheaper loan in the future. If you have bad credit, this may be one way of improving your credit history to qualify for better interest rates in the future. While the majority of payday loan companies don’t report to the credit bureaus, you can find some that do.
Payday loans are meant to be short-term and to help you out of a situation until your next payday. While they are expensive, they can be the only option for someone with a bad credit history. Just make sure you can really afford them and pay them off when you get paid.