Using Payday Loans

How does a Payday Loan work?

The best Payday loan companies are on line. You go to their website and fill out the application form from your computer or your hand held device. They will tell you how much you can borrow. If you choose to move forward with the application, the best ones will approve or reject your application within 10 seconds. The money will be in your account the next business morning. You pay a fee for the transaction and/or you pay a fixed fee per $100 borrowed.

What are payday loans? - Use payday loans wisely

You need some cash but Payday is a week or two away. So true to their name, Payday loans terms are 1 week to 1 month depending on the laws where you live and work. The concept is that you get the loan now to take care of whatever short term financial need you have and then you pay it off when Payday arrives. Note that a payday loan used properly means that you pay it off on time.

To use them wisely you need analyze how they work with your budget, your balance sheet and your personal life plan.

A payday loan used properly has a simple effect on your budget. All you are doing is moving a portion of your next payday forward to the present. Your payday arrives and you pay it back. The effect on your budget is that you must now adjust your future spending to be less than what you made minus the payday loan. After all, the number one budget rule is to spend less than you make.

The second factor that affects the budget is costs. You have several options. Sort out which costs the least and then choose.  

  • You can overdraw your bank account overdraft. You know the bank is then going to penalize you. Any checks will be identified as NSF and all pre-authorized debits will be identified as NSF. An NSF check can cost you $45 just at your bank and then any retailer is going to bill you back for their losses as well. If you rack up 2 or 3 or these, it gets very expensive. Even one can cost you $100 total.

  • You can borrow from your credit card and take it over its maximum balance. In this case credit card companies are charging $40 for going over credit limits even if it is just the monthly interest charge that pushes your account over the credit limit.

  • You can write a bad check and make it right when
    Payday arrives. You incur the cost of the bad check both from the bank and
    from the retailer. You have committed fraud in most jurisdictions. And
    finally you will ruin your credit score or credit rating.

  • You can take out a Payday loan.

A Payday Loan used properly should have no effect on your balance sheet. It should always be addressed in your budget. If you do a Payday loan wrongly then it affects your balance sheet. It will show up as a liability on your balance sheet. In almost all cases there will not be an asset to offset it and you will thus lower your net worth.

The image of a typical Payday loans customer is someone with a low income scrimping to get by. Interestingly enough the customers are having financial challenges but they are not poor. The demographic for this product is customers that have an annual income of $50,000 +. Therefore there is something very important that they want to spend it on. This could be something that is very important to some aspect of their life other than money. The event has to be paid for before payday and the money is already planned in the budget. Rather than run an overdraft or risk NSF checks the customer will fill out the application form from their computer or hand held device. If it is simply a case of not having the money in the budget, you may want to get your life plan and your budget in sync. It is hard to keep them in sync if you do not have a life plan so if you haven't, click on the life plan angel image to go and fill out a life plan once you have solved this cash flow crisis.

Why choose the Payday Loan option?

The two reasons you may choose this option is that it may be cheaper than the other options and it will save you time. Weigh out the costs of NSF charges or overdraft fees and interest and compare it to the amount you will pay the Payday loan company. In a lot of cases you save money by using the Payday loan option. On top of that your problem can be solved in 10 seconds after you have filled out the application. You are then free to go to work to take care of business worry free.

Payday Loans not used properly – Rollovers – very dangerous business

One challenge in this scenario is that you must pay the loan back when you get paid. The payment is due on your Payday and if the money is not there, Payday loan companies are diligent about getting their money. If they were not, they have trouble staying in business. You face that scenario of being pursued for your money or there is an even worse scenario. In this scenario the loan company will get you to make a partial payment and then rollover your loan. They apply all of the fees again to the larger balance owed. They will do this over and over again if you let them. The loan can cost you double and triple the amount of the principal very quickly. This is illegal in most jurisdictions and is at the very least unethical. It is just a bad idea for the borrower and you should avoid doing this. Many Payday loan companies offer this but it is an option you should refuse. The right way to use payday loans is to borrow the money to minimize your costs in a tight financial situation that is short term. Then pay the loan on time and in full.

Watch our payday loans video to find out more.

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