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Payday Loans: When You Should and When You Should Not Apply for One

Written By wong blogjob4 on Tuesday, September 17, 2013 | 11:38 AM

Payday Loans: When You Should and When You Should Not Apply for One
In these days of rising expenses and an unfriendly economy to boot, it comes as no surprise that people are often in a hole for money. With staggering inflation rates pushing up prices of commodities; the business of daily life is getting more and more difficult to deal with.


With hundreds of payday loan providers advertising their fast approvals of payday loans on the internet, it's no wonder that stressed clients find it appealing to simply apply for a payday loan online. There are certain distinct advantages to this mode of borrowing.

Benefits

They are easy to obtain. Approval time is usually within hours.
They are great for borrowing urgent cash on week-ends, nights and public holidays.
Documentation required is only your ID (applicants are required to be above 18 years old), bank statements and proof of employment. So no complicated faxing and copying to deal with.
Due to the online flexibility, applicants are able to apply from the comfort and privacy of their homes and in their own time.
A bad credit background does not hamper your chances of approval of a payday loan. They are only interested in your current employment details.
Those are the advantages. They work well essentially for people who:

Have steady employment and a decent income
Have the confidence and resources to pay the loan back in the stipulated time-period.
There are however several pitfalls that consumers must watch out for:

They have a very quick (and therefore stressful)repayment schedule- usually within one month.
They are associated with unusually high interest rates often pegged at 400 percent up to 700 percent
There is a lot of fine print embedded in contracts cleverly concealed in legally incomprehensible phrases.
The applicant may feel relieved that he has managed to stave off a financial crunch but little does he realise that with his next salary; he has to pay off his loan AND pay other regular bills (rent, utilities, school fees) as well. This leads to a bottleneck situation at the end of the month.

Such stress for repayment invariably leads to the harassed applicant applying for yet another payday loan to pay off the previous one! This snowball effect leads to a spiral of financial disaster that typically requires professional intervention at some point.

But for people who have a reasonably decent cash flow coming in, repayment should not pose a problem. The best thing is to sit down with a pencil and paper and write what you owe and when you can afford to repay the loan. Have you done the math for the current rate on your payday loan?

Conclusion

They serve the purpose when you have a temporary setback- as a one-time deal. They are suitable for people who have a healthy income at the end of the month to look forward to. Analyse your cash problem. Is it really URGENT? Or can you manage with your savings to span the period until your next pay-check? If you find that you can manage, don't apply for one!

Payday loans are not that great for individuals who already have mounting loans and no way to pay them off. Applying for a loan to pay off another one is a sure-shot way of getting into an endless cycle of debt.

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