Credit Where Credit is Due

The present economic recession and unbalanced markets have made more individuals and families discover that they spend too much, do not keep adequate track of their finances and are teetering on the edge of a serious and dire financial situation. People everywhere are dealing with hard times: trouble paying their monthly bills, managing their finances and handling emergency expenses that spring up.

Since credit has also dried up in response to the economic situation and massive unemployment, more and more people are turning to payday loans and other types of alternative loans as an option to pay for emergency expenses and even some monthly bills. This can be an effective way to pay for certain bills until payday, but there are also risks to this method. In order to make the right decision for you and your family, you need to understand both the rewards and risks of taking out a payday loan.

Rewards of a Payday Loan

First, let’s take a look at the rewards gained by obtaining a payday loan:

• Payday loans give you quick money. You can apply for a loan and have the money in your bank account as soon as the next business day.
• There are no credit requirements like a traditional loan. Usually all you need is a job and checking account to qualify.
• Since there are no major credit and income requirements, you do not have to mess with a bunch of paperwork.

Risks of a Payday Loan

Next, let’s take a look at the risks that come with obtaining a payday loan:

• Payday loan interest rates are very high, due to the fact that they are intended as a short term loan. This can cause financial stress if you take longer than expected to pay back the loan. This is the biggest risk of a payday loan.
• Payday loans can be hard to settle or negotiate, unlike traditional loans and lines of credit. This poses a problem if you “default” on your payday loan.
• You may not be able to get as much money as you need. Payday loans are not only short loans, they are also small loans. To top it off, your wages will help determine how much you can borrow, which can pose a hurdle if you are at a low-paying job.

All in all, if you have calculated your monthly expenses correctly and are certain that you will be able to pay off the payday loan when payday rolls around, then this loan can end up being a lifesaver for you and your family, helping you avert financial disaster. On the other hand, if you end up falling short and cannot pay the loan on time, then it can turn into another financial burden that you do not need.

Payday loans have grown over the last few years to help fill the void left when the lenders of regular loans tightened up their credit criteria and began lending only to the top borrowers. They have become a reliable go-to loan for many borrowers who need fast cash now, while they are waiting on their next paycheck. If used responsibly and paid off as quickly as possible, they can be a great financial tool for people who are in tight situations and need some relief until their next payday.