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When Is The Right Time And The Wrong Time To Use A Payday Loan?
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When is the Right Time And the Wrong Time to Use A Payday Loan?

In the current enviroment payday loans have been exposed to even more scrutiny then in years past. Whatever your stance, pro or con, there is no denying that payday loans do in fact service a particular market segement that may otherwise not be approved for a loan at all. A payday loan is just what it sounds like; an unsecured loan given to a borrower on the understanding that it will be paid back in short order once payday arrives.

Why are payday loans more popular than ever?

- ease of application: the entire process can be completed online. A potential borrow submits his or her application through the lenders website. If approved, the payday lender will credit the borrower's account. All this without stepping foot into a bank branch.

- Loan amount- payday loans are mainly used as a stop gap before payday, usually to cover an unexpected expense such as a car repair. Since the average payday loan is under $1,500 it is more likely that a conventional bank or credit union would not fund the loan.

- Turn around time- Since we already mentioned the automated application process, it should come to no surprise that payday loans are funded a lot quicker than a conventional loan.

What you should know

Since payday lenders don't tend to pull credit reports and the loan is technically unsecured, the interest rate will be higher than a typical secured loan. Since the loan in unsecured the ceiling amount of a payday loan is usually well below $5,000. Payday lenders are absorbing more risk than a typical bank so they need to be compensated for that risk which is reflected in the interest rate. You should also be well aware of the due date of the loan and plan accordingly as to not absorb any late fees.

When a payday loan maybe appropriate

- you have an unexpected car repair and you need to get your vehicle fix asap so you are able to get to work.

- there is an unexpected emergency and you need to book a flight to visit your family and you are week before payday.

Noticed I used the word unexpected in both examples. A payday loan should not be used time and time again for every day expenses. It should be used for unforseen, unbudgeted expenses.

It comes down to fiscal discipline and making the correct action of paying your obligations on time. Payday loans, though not for everyday use, still provide a service and liquidity to some that may otherwise not be the allowed the luxury.


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