Here’s When It Makes Sense to Take Out a Payday Loan

Do you ever find yourself in an emergency and wondering whether or not you should look up payday loans in Phoenix, AZ? Well, payday loans are one of the options you have when you need emergency money immediately. However, you shouldn’t just dive blindly into the whole thing before understanding what this loan is all about and when it is most appropriate to take out a payday loan.

What Is a Payday Loan?

A payday loan is a very special kind of personal loan. It is a personal unsecured loan, and it doesn’t involve any credit checks. To understand just what this all means, it’s important that we understand how getting a regular loan from a bank would work.

When you need a personal loan from a bank, you speak to their loan officer and express your wish to take out a loan. The bank officer will perform a credit check on you to ascertain that you have good credit. Then, they will need some kind of guarantee that you can repay the loan. If the loan is unsecured, then they will have to verify your ability to repay the loan by checking your salary, for example. If it is a secured loan, they will need you to provide some kind of security for the loan in the form of an asset.

The problem with this arrangement is that there are things you might lack that could shut you out from accessing the loan. For example, you may have bad credit, which would affect your ability to access the loan. You may also not have any security to offer up for the loan in case the bank insists on offering a secured loan. In that case, you might end up frustrated because you have no idea how to go about the situation.

That is where a payday loan comes in. A payday loan is based on only one thing: your salary. As long as you have a salary, you can get a payday loan. You don’t have to offer up security for the loan, and you certainly don’t need to worry about your credit.

When Is It Best to Get a Payday Loan?

Despite how attractive they seem, payday loans are not to be taken out by just anybody, and certainly not at any time. For starters, they charge very high interest rates. The monthly rate on a payday loan is usually about 21 percent. That sounds reasonable until you note the fact that it’s only the monthly rate. When annualized, it is more than 500 percent interest! That means that you cannot afford to be late on your payments or the interest will pile up, and you might find yourself stuck paying the loan. You also have to pay penalties for late payment, which also add up over time.

The best time to take a payday loan is when you don’t need too large an amount. The smaller the loan you’re taking, the easier it will be to pay it back on time. Also, you should be willing to pay it back in full as soon as your salary comes in. Rolling it over will make it more expensive for you and defaulting could still hurt your credit score.

Payday loans are a great convenience when you’re in need of fast money. However, they are not to be misused. Borrow the money only when you need it and only borrow what you can comfortably pay back.

Speak Your Mind