There will come a time in every working class person’s life when they will need to take out some kind of loan. Most of the time this will be a long-term loan for a house, a car or some other major purchase, but sometimes people need short-term loans for emergencies. The quickest way to get one of these loans is to go through a payday loan service, something that man people will swear is a horrible idea. They will say that these businesses are shady and predatory, and that they’re more trouble than they’re worth. The conversation usually stops there, which doesn’t answer any questions or helps someone who is in desperate need of emergency funds. This post will discuss exactly how payday loans work as well as some alternatives for those who still don’t trust them.
A Vicious Cycle
The biggest reason why so many people are so wary of payday loans is because they can (and often do) lock people into a vicious cycle of repayment. Ideally, one should only need to use a payday loan to deal with emergencies such as fixing a car that has broken down, paying for a costly medical procedure or performing repairs on a home. Unfortunately, things rarely work out that way. Many who have had to rely on payday loans have been stuck handing entire paychecks to agencies for weeks at a time, making them consistently broke and in need of new loans.
High Interest Rates
The reason why payday loans can lock people into cycles of repayment is because of high interest rates. All loans have interest rates, but those for payday loans are exceptionally high mainly because there is an understanding that borrowers have no other options. They are in such desperate need of emergency funds that they will be willing to put up with these astronomical interest rates. It may drive them into financial ruin in the long run, but at least they can get out of whatever immediate financial trouble they find themselves in.
Avoiding Payday Loans
In the end, payday loans really can destroy one’s finances and create more problems than they solve. They thrive because people who use them feel like they have no other choice, but there are ways to avoid the endless cycle of repayment that comes from these kinds of loans.
The most obvious solution to avoiding having to take out a payday loan is to set a budget well in advance and stick to it. Many people believe that this is easier said than done, especially when they factor in the unforeseen financial emergencies that can occur, but budgeting really isn’t as bad as it sometimes sounds. One can easily stick to a budget simply by setting aside a small amount of money with every paycheck. Most of a paycheck will go towards living expenses, but the small amount that is set aside will eventually accumulate into a useful emergency fund that will eliminate the need for a payday loan.
Another way people try to have extra money to avoid taking out a payday loan is by working more hours at their jobs. Those who usually work part-time ask for full-time work, and those who work full-time see if any overtime is available. This does mean a more grueling and exhausting schedule for some, but it also means a bigger paycheck and more financial freedom. This is much less stressful than living with a tighter budget or looking for other jobs, and it can be a great way to impress employers and possibly get a raise.
Sadly, working longer hours isn’t an option for everyone at every job. For whatever reason, some jobs just don’t have the hours to spare. When this happens, many people go out and find a second job. Some will work two full-time jobs, but for obvious reasons that can be very difficult. Others work a full-time job and have a part-time job on the side. This can even have additional benefits beyond just having a second source of income. Many people find ways to turn a hobby into a secondary source of income. Accomplished musicians might look for paying gigs, or those with a talent for photography might look for freelance photography work. It’s a great way for people to make a little extra money while doing what they love.
Of course, those who do look for second jobs or extra hours will need to keep in mind that they will be working more often than not. For some, this won’t be a problem. Young men and women in their 20s might not have much of a life outside of work anyway. On the other hand, those who are married or who have children will have to accept that they won’t be seeing much of them anymore. It’s a huge sacrifice, one that not everyone is prepared to make.
In Conclusion
The fact of the matter is that payday loans can be incredibly dangerous, and one should avoid them as much as possible. A payday loan company is a business, and like all businesses they are trying to make a profit. It just so happens that they profit from the financial misfortunes of others. Some people may feel like they have no other options but to take out a payday loan, but they are often wrong. Aside from following the tips mentioned above, those in need of emergency funds should consider borrowing money from a friend or family member before a payday loan service.
