So you have never had a payday loan and you thinking about getting one. You have seen your friends use them (or abuse them). You have heard all kinds things about cash advance loans and your not sure if its right for you. In this article we try show you when a payday loan makes sense and more importantly when it doesn't make sense.
Scenario 1. It's Thursday. You have no cash and payday is 8 days away. Your credit cards are maxed out . You have planned a big date with your significant other tomorrow night. You have got great reservations and your going to hit your favorite clubs afterward. All you need is cash for a perfect night. You don't want your friends to know your out of cash so you don't ask them for some. You know in the back of your head, all you gotta do is fill out payday loan application and if approved you have got $500 in your account in the morning. This is the easy thing to do. You go to your computer, reach for the mouse, and find a payday loan website. There is no stopping your Friday night.
Is Scenario 1 the right decision? Payday loans are not to help you get your groove on. They are for emergency situations. Paying for a date is not a good reason to get a cash advance. As a general rule you should always pay cash for entertainment. Don't even use Credit cards for entertainment?
Scenario 2. You're car broke down and you have no cash. A mechanic tells you that the timing belt and water pump need to be replaced. The total cost is $450 and the garage wants cash to fix it. You have to work all week and you have to get to work to keep your job. Your credit card is maxed out, your parents won't lend you money and your friends don't have the money to lend you. You need the car to get to work. There is no way around it. You go back to your payday loan store you have used before and they give you a discount because your a customer in good standing. You get a $500 cash advance at a discounted rate because you are a good customer. You get your car fixed, and save the extra cash to pay back at your first paycheck.
Is Scenario 2 the right decision? Yes. You need the car to continue to get income which is very important. Since you had no other options with friends and family, and you had a good relationship with your payday lender, getting the cash advance saved you from a greater disaster in the future. No Income. Additionally, saving the additional principal to pay back on your cash advance at your first payday gives you good leverage to pay down your cash advance early, thus saving extra finance charges.
Scenario 3. You just wrote 3 $100 checks that you know you don't have the money to cover in your checking account. The bank charges $30 per bounced check and merchants charge $25 per check. You calculate that the bounced checks will cost you $30 X 3 = $90 in Bank Charges + $25 X 3 in Returned Check Fees for grand total of $165 in fees. You know you can get a $300 payday loan from your local cash advance store for on a $90 finance charge. This is a $75 savings over letting the checks bounce. You go to the payday loan, fill out an application for a $300 cash advance. You promise yourself to payback the loan on your next pay date.
Is Scenario 3 the right decision? Yes. The savings is obvious with the payday loan. The trick here is to pay back the payday loan on the first pay date. if not, its still maybe cheaper using the payday loan. It depends on many factors such as the number of times the merchants re-present your check and your bank's fee policies.
So you see how a payday loan can be the right choice or the wrong choice. It depends on the scenario. Make sure you understand your situation before applying for a cash advance.