Is a Payday Loan Your Best Option?

There’s no question about it–when you’re in a financial jam, having access to fast cash that’s wired directly into your bank account sure is convenient. If you’re short on money to pay your bills, it can save you hundreds of dollars in late fees and penalties. In cases of unexpected financial emergencies, such as needing car repairs so you can get to work or sudden medical expenses, it may even seem like a lifesaver. But is a payday loan your best option?

Examine Your Needs

The answer to that question might be more complicated than you’d think because it depends on a number of factors. How soon do you need the money? Is your credit score high enough to get a loan from another type of lender? How much time and effort are you willing to sacrifice to get the loan? Your answers to these questions will play a big part in deciding what kind of loan works best for you, and whether a payday loan is your best option.

A Payday Loan Primer

Before exploring other options, you should first understand the loan you’re comparing them to. Some state lawmakers would like you to believe the convenience of a payday loan comes at an extremely high price, claiming interest fees are as high as 400 percent. However, such overinflated figures are based on an APR, or annual percentage rate. So to actually pay 400 percent interest, you’d have to roll over your payday loan–that is, pay interest charges but nothing toward your balance–every two weeks for a year. But since you actually pay off the loan with your next paycheck, the charge is exactly as it’s presented as. So in reality, the one-time fee for a payday loan will likely be a lot less than the total interest you’ll pay over the life of a conventional loan. Plus, if you need the money within 24 hours or have less-than-desirable credit, your other options will be extremely limited.

Alternatives to Explore

Still, there are alternatives to getting a payday loan, and whether one of them better suits you depends on your needs, credit history and situation. Here are a few of them:

• Break open your piggy bank. Certainly the best alternative to getting a payday loan is to set aside a little extra cash each month, allowing it to accumulate for a rainy day. Then, should you ever find yourself facing a financial emergency, you can simply withdraw the money you need from your savings account. Of course, this option falls under the “easier said than done” heading, as these tough economic times have forced people to stretch their monthly budgets to their limits. But by cutting corners here and there and being vigilant about saving money, you should be able to put a little away for the next rainy day.
• Go conventional. Another option is to shop around for a small loan from a bank, credit union or small loan company. Because banks generally like to deal with larger sums, you’d probably have better luck with the latter two. While you should have no problem finding loans with competitive rates, the downside is you’ll have to submit to a lengthy approval process. So if you’re facing an immediate crisis and need cash right away, a payday loan is probably a better option.
• Charge! If you’ve got room on a credit card, you can always get a cash advance or charge your way through your current financial predicament. While this may be an option, whether it’s a better option than getting a payday loan is debatable. Credit card accounts are designed in such a way that borrowers pay mostly interest charges, which are calculated based on each month’s balance. So even after channeling a copious amount of cash toward your balance, in the end you’re still buried in debt. And if you’re having trouble making ends meet now, probably the last thing you should do is accumulate more credit card debt.
• Make a deal. If you don’t mind spending an hour or two with a phone stuck to your head while listening to hold music, your most viable alternative to getting a payday loan might be to ask the parties to whom you’re indebted for more time. Odds are you’ll be surprised at how accommodating many of them will be. Just keep in mind they’re not obligated to give you any more time, and some might not budge in the least. In that case, it will just be a matter of determining whether the creditors that cut you a break left you enough money to take care of the ones that didn’t.

Your Decision

Again, whether a payday loan is right for you is really dependent on what you’re looking for. If you’re looking to borrow a larger sum of money than can be obtained through a payday lender, a payday loan might not be an option at all. However, if you find yourself in a financial jam and need cash in a hurry, or if your credit history prevents you from borrowing money anywhere else, it would probably be in your best financial interest to go with a payday loan. Considering its convenience, effortless approval process and speedy turnaround, you’ll likely be glad you did.