When You Should Consider a Short-term Loan (and When Better not)?

Payday loans seem to be a great opportunity due to fast money getting option and ease of application. Only a few documents are required and even the borrowers with low credit scores can get approved. It attracts multiple low-income individuals who need money to cover various recurring needs, such as rent, education, food and utility bills payments. However, short-time loans are designed for emergency expenses and, thus, they come with high interest rates. They are easy to acquire, which is a plus in case of emergency, but you have no time or possibility to wait or opt for more affordable money sources. Thus, while your need is not of urgent nature, think twice before applying for a short-term loan.

Good Purposes to Apply for a Payday Loan

According to Finder, only 16% of borrowers use such loans for the proper purposes, that is, for unexpected emergencies. These short-term credits are great for small business owners that are developing and prosperous. Applying for a loan is recommended if:

  • you sell seasonal products and anticipate the busy time soon;
  • your business is high-volume;
  • you have a good, earning history;
  • you have bad credit score;
  • you anticipate a promotion.

The interest rates for payday loans are commonly high. That’s why it’s recommended to calculate them quite accurately, knowing for sure that your income sources are sufficient to pay them on time. Thus, when your business is developing or you have already got a promotion and just wait for the increased salary, this solution is good for you. The income forecast is to be very reliable and accurate. Additionally, it’s advisable to consider the loans only for the unexpected and singular needs such as payment for a large lot of goods or equipment purchase. As to the households, short-time loans are the most suitable for the cases of unexpected house equipment of car breakdowns that are to be repaired immediately.

When to Avoid Applying for a Payday Loan?

Meanwhile, the borrowers that have part-time or low-income jobs, being not sure of their ability to pay the loans back on time, are recommended to avoid taking it out. It’s recommended to avoid getting short-time loans when:

  • your income is unpredictable;
  • you are not ready to pay the debt back by yourself;
  • you have no savings or bank account;
  • you can’t handle higher fees and rates;
  • you can’t count on your employer or customers.

If you are not ready to make a personal guarantee for the repayment or want to ask your relatives to pay the loan, it’s better to look for the alternative money sources. Ask your friends to lend you some money before contacting the loan providers. Additionally, according to Wikipedia, payday lenders may charge supplementary fees and penalties. Since the interest rate limitations are imposed, the lenders try to supplement their income by legitimate ways. The existing fees include origination, late and service ones. The fees for insufficient funds can be also charged.

Thus, be very cautious while reading the agreement conditions, paying the greatest attention to the interest rates, additional fees, penalties and fines. The repayment conditions and terms are also very important. Finally, be ready to repay the debt on time, and only by yourself, estimate your future revenues and expenditures properly and apply for a payday loan, being self-reliant and self-sufficient.

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