Payday loans get a bad reputation due to a few bad apples in the barrel. Armed with the right information however, knowing what to expect, and using caution, these loans can tremendously help those that cannot have trouble getting other types of loans due to bad credit.
They can help get finances in order, prevent further credit damage, and in fact actually help repair credit if used properly. How is this possible with such short-term, high interest rate loans? Following are a few examples.
Get Finances in Order
Often a loan is needed to provide some time to get ahead. Payday loans do not consider credit when making the lending decision. Lenders only need to see that the borrower is of legal age and is employed. The employment factor is important because this is basically an advance on the next paycheck.
Used properly, these loans can help one catch up on late payments or even payoff small debt amounts. The key is to use the time between the loan funds being received and the time they must be paid back raise the funds to pay them back without having to take money from the next check. Options include yard sales, sale of big ticket items, and even taking on a short-term second job.
Reduce Further Credit Damage
Getting behind on bills due to an emergency or unforeseen expense will only cause further credit damage. Using a payday loan to keep this from happening will help prevent that damage and allow time to come up with a way to cover the expenses, such as those options mentioned above.
It is a process that requires discipline, because if the funds are not raised another way then a vicious cycle of using each paycheck to pay off a previous advance ensues, and none of the potential benefits of such a loan are ever seen.
These types of loans can actually help improve credit, again only if used properly. They are reported to credit bureaus the same as types of debt, meaning if they are paid off on time they can improve your score. Of course the opposite is also true, so be certain you do what needs to be done to stay current or the damage to your credit could only get worse.
These loans are risky, but for those that have no other options they can be a lifesaver. The key to not getting stuck in the downward spiral they cause for so many is to have a plan to pay it off without using funds from the next paycheck, and stick to it. Consider a payday loan a short-term fix that will buy time to come up with a long-term solution, not solution itself.