Short-term loans, also called payday loans, are advertised as your best solution for any emergency. However, the PEW Research Center’s data states that over 70% of those who use those loans spend the money on non-emergencies. That is a problem because while these deals seem rather good at first glance, they might have you overpaying by as much as 400% by the time you actually close this debt.
Therefore, it’s imperative that you understand how bad of an idea taking a payday loan is. There is exactly one situation where it can make financial sense. If your current circumstances don’t match, you should be looking into alternatives to short-term loans.
That one-of-a-kind situation is, in fact, an emergency. But it’s not only the emergency itself that you should consider. Your financial situation, in general, also matters greatly in this case.
The emergency means that you need money as fast as possible, and a payday loan will give you that. However, the most important question is:
Do you have an opportunity to pay off this loan as soon as possible?
If you aren’t 100% sure that you will be able to pay back the money within a fortnight maximum, you should be looking for an alternative. Note that if your situation is dire, you might consider taking out a different loan to pay off this one. But your second loan must be long-term and with a much more reasonable interest rate.
Yes, it’s true that payday loans can stretch out for up to 12 months. But remember that by this time, you would have already paid the lender over three times as much as you borrowed. This means that unless it truly was a life-altering emergency, using this kind of loan was, most likely, a waste of your money.
Don’t let things go this way and stay away from payday loans for as long as possible.