Four Ways to Use a Payday Loan Wisely

Lately, payday loans have received some bad press.

Critics of these short-term loans cite their comparatively high finance charges, stating that the quick access to cash provided by payday loans is not worth the overall cost. They contend that there are better ways in which to acquire short-term financing, such as credit card cash advances or unsecured personal loans.

However, millions of consumers do not have access to these types of short-term loan options - either they do not have any credit cards or their credit history might be less than perfect, preventing them from securing a personal loan.

Additionally, consumers can find themselves in immediate need of cash and cannot wait for a credit card cash advance or personal loan to be processed.

For these individuals, payday loans offer a solution. Yet, these types of loans do come with their share of risks.

It is true that the rates associated with payday loans are high compared to other types of loans. Payday loan fees can range from 10 percent up to 30 percent of the total loan amount. For example, a $500 payday loan with a 15 percent fee will result in a $75 finance charge, which equates to an annual percentage rate, or APR, of 460 percent.

However, for someone who is in need of quick cash, the $75 fee could be well worth it. The real danger occurs when individuals use payday loans irresponsibly, relying on these payday cash advances for unnecessary expenses and purchases.

Responsible Uses for Payday Loans

Because of the higher-than-normal fees that come with payday loans, consumers should use these loans for necessary purchases only. If the expense can wait, then the individual is better off waiting until his or her next payday or saving up the necessary funds.

However, sometimes the expenses cannot wait. Here are just a few examples of responsible uses for payday loans:

Unexpected Auto Repairs

For many individuals, their car is their sole source of transportation - the only way in which they can get to work or take the kids to school. Not everyone lives in cities with good public transportation, so when your car breaks down, it usually is an immediate need.

Medical Bills Not Covered by Insurance

Even for those with health insurance, unforeseen medical expenses can occur. Often, trips to urgent care or the emergency room require an individual to pay for the visit out-of-pocket. Since you really cannot wait until your next payday to take a sick child to urgent care, such an expense would be considered a responsible use for a payday loan.

Gassing Up Your Car

So, what happens when unexpected expenses occur, for which you pay without a loan, only to find that you cannot afford to buy gas for your car? Without gas for your car, you might not be able to make it to work. While payday loans should not be used to routinely fill the gas tank, these loans could come in handy if you are in a pinch.

One-Time Mortgage or Utility Bill Payments

Just as with purchasing gas for your car, paying your mortgage or utility payments should be regular expenses that are included in your budget. You should not use payday loans regularly to cover these expenses. However, when other unexpected bills occur, you might find yourself unable to cover your normal expenses. A payday loan could be used to cover your mortgage or utility bills in an emergency.