Every once in a while, life throws us unexpected situations where we are in need of quick money. Payday loans are a great solution when you are in need of urgent money but don’t have cash on hand. As the name implies, these are small, short-term loans you can borrow to cover pressing expenses until your next pay cheque is due. People typically borrow a few hundred dollars for a maximum period of 31 days. The borrowed amount is paid back with interest and you simply have to write a cheque that will be cashed by the lender during your next pay day.
Are Payday Loans Affordable?
One of the major downsides to payday loans is that they have a high annual percentage rate (APR). The high interest rates attached to these loans makes them unsuitable as a long term option to solve financial problems. In fact, interest rates can soar to over 100% if you are continuously taking out a payday loan whenever you are in need of money you don’t have. Payday loans are meant for short-term and minor borrowing.
If for any reason you are unable to pay back the loan, you can roll it over to the next month but charges keep accumulating. It is advisable to desist from applying for a payday loans if you feel that you might not be able to pay it back so as to avoid debt accumulation.
When is the Best Time to Take Payday Loans?
While payday loans can be quite costly, there are situations where they can be a life saver. For instance, when you experience urgent medical expenses or are in need of money for car repairs and you will be having more than enough funds to cover these expenses in about two weeks, then a payday loan might be suitable. However, taking up these loans regularly can be costly in the long run. They should only be considered as a last resort when you have no other means of meeting urgent expenses. It is therefore better to seek alternative ways of raising money that will not be as costly as securing a payday loan.
Alternative short term loan options
The most important thing when it comes to borrowing funds is to get the lowest interest rates possible. With payday loans, that is unfortunately not possible but you can find alternative means of getting money for urgent short term uses. For instance, you can set up an emergency cash fund in your savings account or perhaps borrow from peers and family members. Although not one of the best financial solutions, credit cards even have a smaller interest rate compared to payday loans.
With the high interest rates to be paid for a payday loan, this only adds the gap between your debt to income ratio. Therefore, remember not to take up payday loans if you are not able to pay them back and also not to take them up frequently.
