Payday Loan Problem

Proper Payday Loan Use

The much maligned payday loan has been around for some time and during this time, it has been both used and abused. Critics call it usury but for some people with bad credit, it is the only source of emergency money. Let’s look at some of the good and bad ways people use this controversial loan and ways to solve the payday loan problem.

Good Uses For Payday Loans

In every state, there is a group of people that want to outlaw payday loans and in some states, this goal has been reached. Unfortunately, eliminating the payday loan can harm a group of people that actually use them responsibly. People that could not otherwise have access to credit. Here are a few situations where payday loans can be used effectively and responsibly.  All situations assume that the borrower has no other access to lending because I will be the first to say that payday loans should be used as a last resort. If you have the credit, an installment loan quote is the way to go. Here are some good and responsible things to use a Payday Loan for.

    1. Dental Work
      If you have ever had a tooth ache, you know that it can be extremely painful. Having an open nerve i your mouth is excruciating and sometimes the only answer is a root canal or having a tooth pulled. So, what happens if you need this procedure and you have no money and need a loan with bad credit?
      A payday loan is where many people turn when this happens. You can have a tooth pulled for around $200. Fees vary for payday loan but an example of a fee might be $15 per $100 borrowed. This means that the cost of this loan is $30. It is far better to live with a $30 fee than to live days with a sever toothache. It is just not practical to live with that kind of pain. Without payday loans, many people would be unable to get this procedure.
    2. To Prevent Eviction
      It happens all the time. Someone is a few hundred dollars short on rent. Most landlords and apartment complexes are unwilling to take partial payments. This is especially true these days with housing being harder to find. They know that a replacement tenant is just around the corner.
      Without access to a payday loan, many people might find that they are facing the beginning of an eviction process. If they have to borrow $300 to make the rent payment, the $40 to $60 in fees is well worth it. Even if they are not immediately facing eviction, late fees at apartments can add up quickly and they can easily surpass the fees charged by payday lenders.
    3. To Keep Utilities On
      If a necessary utility such as electricity or water is about to be shut down, a payday loan could be a good way to keep it on. First, consumers should contact their provider to see if there are programs that could help but if this fails, a loan can keep the power or water on.
      Unnecessary utilities and services can be allowed to go off. These include things like land line phones and cable television. Gas, electricity and water are necessities though. Besides, the fees from a payday loan are often much less than a reconnect fee.

Bad Uses For Payday Loans

Like everything else financial, payday loans have been and will continue to be abused. This is why they have been outlawed in several states and severely regulated in others. It is up to both the lenders and the borrowers to properly use payday loans. A borrower should know what they are getting into and a lender should not let them get in over their head. Unfortunately, this does not always happen. Here are some instances where a payday loan should not be used.

  1. You Have An Outstanding Payday Loan
    If you have a loan out now, you should never take out another one. Lenders should not allow you to do this but sometimes it happens. If you get a loan before you have paid off your last one, your debt will just keep snowballing, getting bigger and bigger. If you need money and you have not paid off your old loan, don’t even apply for another one. Eventually, you have to come to terms with not having money and suffer the results. Do it now before it gets even worse.
  2. You Want To Buy A Luxury Item
    This is the most absurd use of a payday loan but, unfortunately, this also happens. Someone finds that they need money for a concert ticket or maybe for a date night and they take out a payday loan. That luxury is going to cost you an absurd amount of interest and might just put you in real financial distress.
  3. Late Fees Are Less Than The Loan Fees
    This is fairly common as well, where people do not consider how much the late fees or overdraft fees would be. If they are less than that of the loan, don’t get one. You should also realize that unlike payday loan fees, late fees are often negotiable. If your account has been in good standing, creditors are often willing to waive or reduce late fees. You have to call and find out.

The Solution To Payday Loan Use

The solution to the problem of payday loan abuse is twofold. First and foremost, consumers need to educate themselves on the risk of these loans. They need to consider the fees and any alternatives that they might have.

Second, and by far the most effective cure, is for lenders to become more responsible. Borrowers are going to do what borrowers do. If they want something, they are going to find a way to get it and all to often do not consider the consequences. Lenders need to wipe the dollar signs from their eyes and consider if a borrower can actually afford the loan. They should consider not just the income of the borrower but also the fixed expenses that this borrower has.

Payday loans are probably here to stay and they should be. If used wisely, they are a great tool for those who can not get credit somewhere else. Even with the high fees, that are necessary to attract lenders, they serve a useful purpose.

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James Car is a finance, loan and budget expert based in the United States. After attending Brookhaven college, he went on to become a successful entrepreneur. He now enjoys writing articles that help people save and make the most of their money.