An increasingly popular industry in different continents around the world, payday loan companies reach out to a particular public that is seldom addressed by other financial entities that promote payment solutions. Payday loan companies appeal to the average American
looking to borrow a small amount of money to pay for unexpected bills, non-budgeted expenses, and other personal financial emergencies that require cash availability within a matter of hours. Though strongly persecuted by other financial entities, experts, and the common man, there is a general misunderstanding of how payday loans work, what their advantages are, and how, when paid on time, they can be a healthy and successful solution to your immediate financial distress.
How to Properly Use a Payday Loan
As most articles and pieces on payday loans will tell you, users reach out to payday loan companies for short-term loans to cover non-budgeted expenses. Unexpected car repairs, unplanned medical bills, and due payments are examples mentioned most often of what
payday loans are used for. Take this for an example: bad teeth run in the family, and because you have never had extreme dental problems, you are not aware of such conditions. It is the last week of the month and you treat yourself to a nice bag of pistachios. You like to eat them out of the shell and decide you can use your teeth to crack open one of the shells. The shell, and indirectly your family history, causes your front tooth to crack. You call the dentist to make an urgent appointment and you are charged $250 for the repair and the last minute appointment.
When in the scenario described above, a significant amount of people would find themselves hand-tied. Unable to pay for the dentist bill at that particular time of the month, you are left with little choices for borrowing money. Sometimes your family is unable to chip in, and credit card companies or banks have fixed-amount loans that supersede your needs, charge too
much up-front, or both. The bottom line is there are not many choices outside traditional banking loans or adding to credit card debt. With the booming of the payday loan market, reputable payday loan companies have given customers a convenient alternative to pay for
those unexpected bills. If you find yourself considering a payday loan, ask yourself the following questions beforehand to ensure it is the right solution for your current situation:
Urgency – Is getting this payday loan a solution for an urgent situation that cannot be delayed?
Payment capacity – Will paying the payday loan within the established 2-week term be possible?
Active account – Is my bank account active; and will I have enough to pay back the loan and lending fee by the
established date?
Going over these three basic principles before resorting to payday loans is the best way to determine whether a payday loan is the best solution for you. While some companies might seek out returning customers, the best payday loan companies are truly providing you with a solution to a short-term need. In fact, companies looking to sincerely help their customers with a fast solution will not allow customers to take on more than one payday loan at a time. Companies that are aware of and follow fair business practices tailor loans to customers'
paying possibilities.
Payday Loans vs. Other Market Options
In an ever-growing market like financial services, customers have an array of options to choose from when it comes to payment solutions. Each financial service meets different needs and therefore should be thoroughly examined before choosing what the right option for your financial situation is:
- Credit cards
- Personal bank loans
- Personal loans from friend or family
- Ask for payment plans
- Payday loans
Be Aware of Credit Card Convenience
A credit card is one of the most common and readily available means of payment in the American market. It makes perfect sense that you would resort to that option when facing an unexpected expense. In 2008, more than 176 million Americans were credit card holders,
with an average of 3.5 credit cards per person. The average debt per household owning a credit card amounted to a little under $16,000. Aside from credit card debt numbers and demographics, we own credit cards because they are convenient. The problem is that they are so convenient that we are seldom aware of the amounts we spend with them; hence the high debt numbers of credit card holders. In addition to the escalating credit card debt balance, customers ought to be aware of the cash advances and interest rates credit card companies charge for cash withdrawals and overdraft privileges.
Having a friend or family member loan you the money you need is another way people cope with unexpected expenses or due bills. Though practical, there are several downsides to this option:
Relatives and friends are not always financially reliable. They are not always
financially willing to lend us the amount of money we need or when we need it.
Friends and family are often in need of the money you borrow from them. When
looking to deal with stressful situations like making simple payments, you want
your loan to diminish your stress. Without due dates, your relatives can come
asking for their money back at any time and you are back to square one.
Borrowing money from a friend or a relative could jeopardize your relationship with them.
More often than not, we overlook due dates agreed with the person who loaned
you the money and sometimes struggle to pay them back, if ever. Unsettled debt
between friends and family has the potential to tear apart your closest friends
and family members.
Ask For a Payment Plan
Financial advisors believe customers should approach collectors in order to find payment solutions or payment plans. In today's economy, collectors would rather get some of their
money now than none at all. This situation favors debtors making payment extensions or plans a more viable solution for both parties. Though some entities might not embrace payment plans, make sure to ask and try to negotiate alternatives to help your debt situation move forward.
Payday lending is a reputable loan service because:
It's usually more customer friendly than banks; the one requirement you need to comply with is having a steady income.
Payday loan companies take credit records into account less often than other lenders when processing your loan request.
Payday loan companies directly deposit the money you requested to your account and automatically charge the amount on your due date; you don't need to worry about transfers, deposits or exchanges.
Competitors in the financial services industry have long tried to discredit the payday loan industry, accusing payday loan companies of charging massive annual percentage rates, or APRs. An APR is the cost of a loan calculated over a year and it is often used in long-term financing and loans. Therefore, for a short-term option like payday loans, APR is not the best determinant of the effectiveness of payday loans.
However, the truth is payday loans have high APRs, if used as traditional bank loans. While bank loans are designed to be paid in the long-term, payday loans are meant to be quick
cash for emergencies, payable within a very short time period. If used wisely, payday loans help intelligent borrowers deal with their unexpected bills without having to pay extra. Payday loan companies will continue to do business successfully by providing a quick, high-quality service customers can truly take advantage of.
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