Payday Loans - Blessing or Debt Trap?

A lot of people are skeptical about payday loans, and a lot of people make use of them regularly with little or no problems. Since the amount borrowed is usually small (normally only up to $500), there is normally no problem paying back the loan by the next pay day or by splitting it up over two pay days.

However, because there is easy credit available everywhere, it’s often far too tempting to borrow money to buy something that you do not really need. A payday loan should be treated as an emergency resource to cover an unexpected expense that has to be paid for before your next pay day.

One of the things that makes payday loans such a convenient way of getting your hands on some extra cash is that they do not require a credit check. All you need to do is prove that you have a steady job, a take-home pay of more than $1,000, and that you are a resident of the United States. You’ll often need to prove you have a checking account, as well. This type of easy lending tends to protect the borrower more than the lender, as it opens companies who offer cash advances up to being taken advantage of by people with very bad credit ratings. This is why a payday loan company will check to see if you have a large number of bounced checks on your record, and you might be declined for this reason.

Other than an over-accumulation of bounced checks under your name, it is very unlikely that you will not be approved for a payday loan. Unfortunately, the ease with which you can secure a few hundred dollars makes these potential debt traps for people who are financially ignorant and not experienced at dealing with loans. Most people do not look at the pay-back date the right way; for example, if your paycheck after taxes is $1,800 and you borrow $200 as a payday loan, on your next payday you will have to pay back the $200 plus around $30 in fees, leaving you with only $1,570 to spend that month.

In other words, if you take out a payday loan, you will have to be prepared to be very thrifty next month. This is the idea, but the unfortunate thing about unexpected expenses is that they can be very unexpected! If you fall short again in the next month and something big comes up, you might end up having to take out another loan, and this can start getting expensive, putting you further and further into debt. When you get stuck in a roll-over cycle of taking out consecutive payday loans, you will always be slightly short at the end of the month.

Managing debt is a life skill that everybody needs to learn, whether you plan on taking out or currently need to take out a payday loan. If you know you have a bad history with debt and you do not deal with debt very well, perhaps payday loans are not the right path for you. On the other hand, if you know how to pay back a loan as soon as possible and understand the effects of interest and fees, go ahead and take out a payday loan if you fall short before your next pay day.

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