Payday loans can provide some great benefits to those who use them right. However, they can also be a dangerous tool in the hands of inexperienced people who don’t know what they’re doing. This is also the reason why you might have heard some negative things about the payday loan market. With such a large number of people misusing them, it’s easy to hear all the horror stories of people who’ve found themselves in deep debt.
But statistics indicate that payday loans are roughly on the same risk level as other, more traditional loan products. When used correctly, they’re no more dangerous than a loan from your bank. They’re just supposed to be used in a completely different manner in the first place, which is where some people’s confusion seems to come from.
Understand Your Financial Situation
Take a good, honest look at your finances. It’s important to be honest with yourself here, because this concerns your ability to repay your new loan in the future. A common mistake is to be well aware that there’s something wrong with your finances, but to still disregard it or believe that you can work around this issue with enough effort. Often, this results in disappointment and a series of challenges that you’ll have to overcome. And the only way to prevent this from happening is to simply be honest with yourself in the first place.
Use Your Smartphone and Computer Properly
Most people have a great tool in their pocket or on the desk at home, and yet they don’t use it to its full potential. We’re talking about modern technology and the various gadgets it’s brought into our lives. They can be great tools for organizing your finances and your life as a whole, and yet most people limit their use of those devices to browsing Facebook and looking at funny pictures.
All it takes in most cases is a set of apps to get you started. Things like a budget tracker, a schedule planner, and of course, your bank’s online banking app can make a huge difference in your daily schedule and can help you stay more organized with just a few taps on your screen.
Don’t Treat It as Free Money
Another problem that’s commonly observed among people taking out lots of payday loans on a regular basis is that they have the wrong idea about how these loans work, and what they should be used for in the first place. The realization that a payday loan is easy to acquire and available through a large number of lenders can often plant a bad seed in the heads of people who are not experienced at handling their own finances. Many suddenly start seeing this as “free money”, and believe that they can safely take out one payday loan after another.
But as you’re probably guessing, that’s one of the fastest ways to find yourself in financial ruin. Payday loans are supposed to be an emergency tool and nothing more. Using them for things like luxury expenses or random purchases is just begging for trouble.
Know Your Lender
You have a lot of information available at your fingertips. Take advantage of that. Just like your lender wants to know as much as they can about you and your financial situation, you have the right to know how they run their business and what you can expect from them. Look up the name of each lender you’re considering online to see if there are any negative reports about them. If people have had trouble with that company in the past, it will be easy to track down that information.
Keep in mind that a lack of any reports is not necessarily a good sign. It could indicate that the lender hasn’t been around for long enough to build any kind of reputation. And in some cases, this could mean that it’s a rebranding of a previous lending agency that was forced to close down for whatever reason. But thankfully, if you can use the Internet properly, you can often find out details like that without too much hassle.
Don’t Rush into the Decision
Last but not least, one of the most important points in smart payday loan use is to be patient and evaluate your options carefully. Never rush into a decision like that without studying everything available to you in as much detail as you can. Sure, in most cases, if you need a payday loan in the first place, it’s because you’re in a desperate situation and need money urgently. But even in those cases, you should still be able to sit down and evaluate what’s going on through a critical perspective. And when you approach the situation with a calm state of mind, you’re much more likely to notice little problems and discrepancies.
A payday loan can be a useful tool in the right circumstances, but it can also lead to problems if you’re not careful. Many people who decide to use a payday loan to get out of a problematic situation often underestimate the difficulty of paying it off. It’s not impossible to repay, sure – but you have to be prepared and know what you’re getting yourself into.
On top of that, a large number of people also tend to rush into the decision to take out a payday loan without even bothering to consider the other options available to them. Which is unfortunate, because in many cases, there is something better that can be done instead of going straight for a payday loan. Let’s take a look at some of the options that you might be forgetting about.
Look Around More
It might sound obvious, but you’d be surprised how many people fail to simply do their homework properly before deciding to go for a payday loan. Just because you think that you’re ineligible for a regular loan doesn’t make it true – so go talk to a bank if you haven’t yet. In many cases, banks might be willing to overlook certain issues on your record – like a bad credit score – if you can explain the situation and convince them that you’ll be able to pay off your loan on time.
And even if you do decide to go with a payday loan, don’t just go for the first offer you come across on the market. Take your time and find out what conditions the different lenders in your area can offer you. Sometimes, you will realize that you were about to miss out on a potentially great deal.
If you have any credit cards available, consider using them before going for a loan. In the end, a credit card is still a line of credit, and it can give you some extra freedom in emergency cases where you can’t make ends meet. However, credit cards are not really designed to be used as a substitute for ordinary loans. Pay attention to all special conditions attached to your card(s), and make sure that you don’t go over any critical limits.
Otherwise, you might find yourself in an even more challenging situation than the one you were originally in. It’s actually not rare at all to hear about people who’ve gotten in financial trouble after trying to cover one line of credit with another.
Friends and Family
An option that you might feel uncomfortable relying on, but still an option nevertheless. If you can borrow from any friends or family members, you should probably go for that instead of taking out a regular loan. It might feel awkward doing this, especially if it’s the first time you have to do it, but in the end, it’s better than dealing with a bank or another creditor and facing the possibility of defaulting on a loan.
If you do decide to go for this option though, make absolutely sure that you’re prepared to pay that money back. Otherwise, you risk straining your relationship with people who care about you.
Tax Refund Loan
A tax refund loan is often a good option when you need urgent cash and are willing to forego a portion of the money you’d receive from your next tax return. The way these loans work is by giving you a sum of money calculated based on your anticipated next tax return. The good thing is that you don’t really have to “repay” anything in the end – you’re just getting access to money you would eventually have anyway, and taking a small financial hit for the convenience.
However, don’t do this if you’re not absolutely certain about the expected value of your tax return. If you overshoot and end up getting less on your return, it won’t be the lender’s problem to cover the difference. They’ll still expect you to pay back the loan in full, which can put you in a slightly uncomfortable situation if you’re still short on money. However, if you do have the possibility to verify your tax return from top to bottom – e.g. if you’re friends with a good accountant – this option can work out very well. Unfortunately, it’s a one-time thing, as you can’t borrow against your tax return more than once. If you get hit by another financial problem later on, you might find yourself out of options and forced to take out a payday loan anyway.