5 Ways to Responsibly Use Payday Loans

May 7th 2016

Payday loans get a bad rap in most circles. Before states began regulating payday loans, there were indeed incredibly predatory lenders who charged impossibly high interest rates, often hiding this information in the fine print. Since regulation, interest rates payday lenders can charge are restricted, so you no longer see abuse of APR. Despite that, payday loans are generally looked on as a ripoff and a scam.
A payday loan functions as a short-term loan option. If you have an emergency before payday, such as a car problem, you don't always have the option of borrowing money from friends, going through a personal loan process with a bank or putting the cost on your credit cards. When this happens, one of the best ways to tide yourself over is to use a payday loan. The key to making it work for you is to understand how to use these loans responsibly. Keep these important facts in mind:

1. Look for reputable payday loan companies.
Typically, you're in an emergency situation when you consider a payday loan. You may not think as clearly and logically as you would normally. Avoid falling into a trap where you end up rushing into a payday loan before finding out whether a company is legitimate or not. You can find payday loans in your local community as well as online. Look up reviews for these services before you give them any information. Generally, you provide a payday loan company with a pay stub to verify your income, your bank account information so they can deposit the money, and either a post-dated check or permission to withdraw payments from your account. The majority of payday loan companies do not check your credit rating, so be wary of companies aking for your social security number. 
2. Examine the payday loan contract before you sign.
Make sure you understand what the payment terms are, and how much you're getting charged in interest. Generally, the interest rate is high, but that's because they are short term. You aren't supposed to keep these loan payments going for over a week or two, past your next payday. Some companies allow you to extend the loan repayment or roll over your loan into another payday loan. 
3. Avoid stacking payday loans on top of each other.
The problem many borrowers have when they use payday loans is taking out a payday loan to pay a payday loan, or rolling a loan into another one to try to cut down on the high interest that occurs when you take longer than a week to pay. Some states ban rollovers completely, while others limit the amount you can roll over. You want to pay off the loan as quickly as possible, as it's a losing financial proposition to do otherwise. 
4. Start a budget to put aside money to deal with emergencies.
You want the option to avoid payday loans in the future unless absolutely necessary. When you create a budget, this allows you to put some money aside to deal with sudden car troubles and other difficulties that you may run into. Even a little bit adds up over months. 
5. Borrow only what you need.
If your car repair bill is $500, take out $500 against your next paycheck, not the maximum amount that you qualify for. If you borrow more than you can easily pay back, you can fall into a trap where you get further and further behind on payday loan repayments due to the size of the balance. You don't want to get behind on payments, so only borrow what you need and the amount you can afford to repay. 

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