Although taking out a pay day loan is quick and easy it’s important that users understand that a pay day loan is designed to be a short term solution to an immediate need for cash. The decision to take out a pay day loan therefore is one that should be considered and understood before being undertaken. While users receive money quickly and with little fuss or paperwork, borrowing irresponsibly always has implications. This type of borrowing can help an individual to overcome a short-term financial shortfall, but should not be a replacement for healthy spending habits over the long-term.
The Mechanics of a Pay Day Loan
In most instances, a pay day loan works as an advance against one’s future paycheck. To obtain such a loan, the lender typically requires the borrower to provide several pay stubs and make repayment arrangements prior to the loan being funded. After these conditions have been met, the borrower receives the advance on his or her paycheck. The term of the loan is typically a few days to a few weeks, but never beyond the date of the borrower’s next payday. When the borrower receives his next check, he is expected to repay the loan in full. If this does not occur, the borrower can roll the loan over to be paid at the next pay day. The fees for this type of loan, although fine in the short term, can mount up and become significant when compared to annual interest rates.
The Choice to Borrow
Given the convenience, speed and simplicity versus the possible high cost of this type of loan, it is important to understand how to use a pay day loan responsibly; reserve this type of borrowing for instances where there is an immediate need for cash. The risk for some borrowers is that upon receiving one pay day loan, they will need to continue to obtain new loans to maintain their lifestyle, always advancing their next paycheck. The effect of this type of pattern is to reduce one’s pay by the amount of the fees, making it harder and harder to keep up. If this is a concern, it may be advisable to consider other options.
When a pay day loan is most prudent is when users need money quickly without having to answer a lot of questions, put forward a good reason for needing the money, have a good credit history or put forward a detailed repayment plan. For example, if sudden car trouble requires paying for the repairs in order to keep going to work, you don’t want to have to get to a bank and go through a lengthy application process to get money in a week’s time or even two weeks time and then spend the next 6 months or a year repaying the loan. A pay day loan would be a better choice; a few minutes searching online for a pay day loan provider and filling out their online application form and you can have the money in your account to get the car fixed in an hour. It is important to note that a pay day loan is intended as a short term solution to an immediate need; if your car needs fixing today you need money today, borrow the money to bridge the gap between now and pay day and pay the loan back. Ultimately each individual needs to weigh the specific circumstances against the cost to determine what is the best decision in his or her circumstances. If you need speed and convenience than a pay day loan is for you.