Introduction
Sometimes in life one finds himself or herself in a situation where they need cash urgently to meet some bills. It is always recommended to have an emergency fund, but not everyone can call upon his/her savings when an emergency occurs. For the people who have an urgent need for money, payday loans are one of the best options to solve this problem. However, these loans attract high interest rates and fees hence the need to know when to apply for them. In this article, we will look at the circumstances that make it necessary to think about a payday loan and give some information about how the process goes.
What is a Payday Loan?
Payday loan is a type of a short-term and very costly credit which is intended to offer the client quick cash, due to be repaid upon the next payday. These are easy to get, and most of the time, there will be no need to check the credit history of the borrower. Payday loans usually are between $100 and $1,000, depending on the amount of the loan and the borrower’s income. The approval of a payday loan is fast, but the price is high, as the APRs for such loans can reach 300% and more.
When it is Appropriate to Apply for a Payday Loan
Still, there are certain circumstances where a payday loan is possible and it is important to manage this type of credit properly. Here are some instances where payday loans could be appropriate:
- Unexpected Medical Bills
Accidents and illnesses happen at the most inconvenient times and can be very expensive to treat. In case you are uninsured or your insurance does not cater for all the charges, a payday loan will help you to pay for co-payments, prescriptions or emergency treatments. Though it is unwise to borrow for medical purposes, the need for care makes a payday loan a viable option when all the other options are exhausted.
- Emergency Home Repairs
Home repairs, such as fixing a leaking roof or a broken furnace, can’t always wait. If your home requires immediate repairs to prevent further damage or to ensure the safety of your family, a payday loan can help you get the funds quickly. For example, if a severe storm damages your roof and your insurance payout is delayed, a payday loan can bridge the gap and help you avoid further problems.
- Car Repairs
If your car breaks down and you rely on it for commuting to work or other essential tasks, you may not have the time to wait for traditional financing or save up for repairs. In this case, a payday loan can help you cover the cost of necessary car repairs quickly, allowing you to get back on the road. Keep in mind that it’s essential to borrow only the amount needed for the repair and have a plan to repay the loan promptly.
- Utility Bills
Falling behind on essential utility payments, such as electricity, water, or heating, can lead to disconnection or late fees, further worsening your financial situation. If you’re facing the risk of having your utilities shut off, a payday loan can help you cover the cost and keep your services running. However, you should only use a payday loan for utility bills if you’re confident that you can repay the loan by the due date.
- Rent or Mortgage Payments
Missing a rent or mortgage payment can have serious consequences, including eviction or foreclosure. If you’re experiencing a temporary financial shortfall and are at risk of missing a payment, a payday loan might help you bridge the gap. However, this should only be a last resort after exhausting all other options, as the high interest on payday loans can quickly lead to more debt.
- Emergency Travel
In some cases, you may need to travel urgently due to family emergencies, such as a death or illness in the family. If you don’t have savings or access to other forms of credit, a payday loan can help you book a flight or pay for transportation. It’s important to carefully evaluate your need for emergency travel and ensure that the loan repayment will not strain your finances further.
When Not to Use a Payday Loan
Payday loans are a good solution when it comes to obtaining money urgently, but they are not always useful in other cases. Here are instances when it’s best to avoid payday loans:
- Routine Expenses
Payday loans cannot be used for such things as food, gas, or going out to the movies. Payday loans are useful when you have an emergency that is not urgent because the interest rates are high and you end up paying more than the amount you borrowed when you are paying other bills. If you are having problems meeting basic living costs, then it may be more appropriate to try and budget or speak to a financial advisor.
- Consolidating Debt
Even though it may be advantageous to use a payday loan to pay off other debts, the high interest rates of payday loans make it impossible to consolidate debts using them. However, there are other ways to deal with credit card debt, such as personal loans, debt management plans or creditor negotiation.
- Large Purchases
If you are thinking of making a big purchase like furniture or electronics you should wait and save for it or use a loan with a lower interest rate than using a payday loan. Payday loans should only be taken when there is some emergency and the expenditure is inevitable, not for luxuries.
Bottom Line
Payday loans are meant to be taken for a short period of time to help people get through a tough financial situation, however they are very expensive and dangerous. When thinking about taking out a payday loan, ask yourself if the cost is really necessary and if there are no other ways to borrow the money. However if you are convinced that a payday loan is required, make sure that you borrow just enough to cater for the requirements and ensure that you have a clear plan on how to repay the loan. Larvin Advance Loans is a responsible payday loan company that urges borrowers to think twice before applying for a payday loan.