The payday loan industry is often given a bad reputation because of the high interest rates and fees associated with payday loans. The truth is, payday loans can be a beneficial alternative source of loan money as long as they're used in the way they were intended. The people who end up paying a lot on these loans are typically the ones who borrow them for long-term, non-emergency situations, and that's exactly what they're not intended for. If you're wondering whether a payday loan is appropriate for your situation, you need to understand how they work.
The Process of Obtaining a Payday Loan
The steps to getting a payday loan are fairly simple. It's relatively easy to qualify for one. Here's what you'll need:
- An open checking account. You'll need a checking account that has at least a few months of history on it, and you may need to prove that it's still open and doesn't have a negative balance.
- A steady job. You'll need to bring in pay stubs dating back at least a month or two, but the loan center may also ask for proof that you've held the job for at least six months. This is to ensure that you'll have the necessary income to pay the loan back in a timely manner.
- A checkbook. The loan center will hold onto a check you write for the amount you'll owe, and then cash it when the payment is due.
If you can fulfill these requirements, all you have to do is visit your nearest payday loan center to start the process. It's usually quick and easy, and you may walk out of the center just minutes later with cash in your pocket.
When You Should Get a Payday Loan
If you're planning to use a payday loan to pay for a new TV or a vacation, you'll be better off trying to get a traditional personal loan. Payday loans are encouraged more for the following situations:
- You have a financial emergency. If you have a small amount of a bill or other debt that must be paid right away, and you just don't quite have the funds for it, a payday loan can be a reasonable solution. As long as you have the financial capacity to pay the loan back as quickly as possible, you'll be able to cover important needs so that you don't receive an expensive overdraft fee or bounced check notice. Fees like this can be reported to credit agencies and damage your credit score.
- You need it for a very short term. Most payday loans are for a few hundred dollars, and are expected to be paid back within a week or two when you get your next paycheck--hence the name. If you absolutely can't wait until your next payday for an item you really want or a repair you need to have done, a payday can be a relatively inexpensive alternative. Traditional loans are used for more high-ticket items like jewelry or electronics, so a payday loan might be more appropriate for cheaper items.
- You have bad credit. If your credit score is not quite where you'd like it to be, you may not be able to qualify for other types of loans. A payday loan can be a good substitute in this scenario because most lenders don't even require a credit check. Just make sure you have the capability to pay the loan back in a timely manner.
Payday loans aren't recommended if you're planning to extend the loan out for a longer time period. This is when you'll start to get hit with high interest rates, and paying it back may become more and more difficult the longer you take. Use a payday loan for an emergency and pay it back on time, and you'll see the greatest benefit from using this type of loan.Find more info here on making the decision on whether or not the payday loan is right for you.
