We often hear negative points and warnings about payday loans or short-term loans. However, there are positives and reasons why quick loans are necessary in our world.
To start, not many families have a sizeable emergency fund, or have an emergency fund at all. If an unexpected expense occurred, many would be faced with difficult decisions as to how they would pay the expense. That is when a quick loan would come into play.
What tends to give payday loans a bad reputation is their high-interest rates if you don’t pay the loan back in time. The rates tend to be significantly higher than a conventional bank loan would be, causing some to struggle to pay back the loan. However, with proper planning and consideration, you don’t have to get caught off guard by the fees.
If you’re thinking of applying for a quick loan, here are three things to think about first.
Why Do You Need the Loan?
The number one question to ask yourself is why you need the loan? Your reason for applying could determine if this is a smart move or not.
Reasons like simply wanting more money in your bank account, having more cash for a weekend out, or using it to buy a luxurious item, those are all not so good reasons. Since these are wants that you can live without, if you cannot afford them without a loan, then it’s likely best to wait.
What Do Your Finances Look Like
Take a look at your financial situation. What is causing you to get a loan in the first place? Is it poor money management? Did an emergency occur that you weren’t prepared for (in which case, that’s a sign to start your emergency fund)?
Seriously looking at your finances before applying for the loan could help better prepare you in the future, so you do not need to take out another loan.
Can You Budget to Repay the Loan?
One part that tends to get overlooked when taking out a quick loan is whether or not you can afford to pay it off shortly. Because these are quick, small loans, you will likely have to pay it back fairly quickly.
Take a look at your budget and see how you can add in the loan payments. The longer you take, the more you pay in those high-interest rates. So, by budgeting to pay the loan back as quickly as possible, it will save you money in the long run.
It’s possible to get caught in a cycle of needing more loans to pay back your current loans. If that happens, it will quickly turn into a serious problem. Knowing whether or not you can pay back the loan right away should answer the question as to whether or not you should apply for the loan.
Use short-term loans for emergency purposes. If you get a loan to finish paying for an item, ensure that you’ll have the money right away to pay it back.