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When should you consider payday loans?

[Oct 29, 2010.]


In an ideal world, every consumer would have a substantial emergency savings account or an unlimited credit card to pay for unanticipated expenses. A goal for every individual should be to build a savings account with three to six months of expenses, but not everyone has had the time and money to reach their target savings goal. Saving can be particularly hard for young people in their first job or people who work varied hours each week, because budgeting for the basics can be challenging enough. Financial experts recommend establishing an automatic system of transferring money into a savings account from every single paycheck in order to be better prepared for the unexpected.

Individuals who have yet to start a savings account or who have yet to amass much of a balance in their savings account may need to consider other alternatives when an unforeseen bill must be paid.

Short term payday loans can be a temporary fix

Direct lender payday loans allow you to access your paycheck early. Some online payday loans are even available for faster service. Typically payday loans are limited to $50 to $1000, but some payday lenders only loan about $400 or $500. The interest charged on quick payday loans is usually high when evaluated on an annual basis (APR) but if you pay the loan back on time, the amount of interest paid may not be that high.

The biggest problem many people have with payday loans is that they cannot repay the loan when their paycheck arrives and must extend the loan or take on more payday loans to pay their bills.

The important thing to recognize when choosing to use payday loans is that they should be a temporary, short-term solution to an emergency, not the type of financial product you should rely on regularly.

Make sure you are using payday loans for true emergencies

The easiness of payday advance loans may tempt some individuals to use them more often than they should. Before choosing instant payday loans as the solution to a problem, make sure there are no other alternatives. For example, if your car needs an expensive repair, consider whether you can use public transportation until you save the money to have it fixed. If not, and you need your car for your job, a payday loan might be necessary. If you need cash to pay your heating bill, contact the utility company and see if you can make a partial payment.

While every payday loan borrower should take a hard look at their finances and start setting aside some emergency savings, sometimes these loans offer the only short-term solution to a financial crisis.


About Author:

Michele Lerner is a freelance writer with twenty years of experience writing articles and web content for newspapers and magazines on topics related to real estate, personal finance, and business.

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