The financial difficulties that we all face are not small matters. These days, simply meeting our regular bills is something of a challenge, and dealing with these commitments can drive some people to desperate measures, such as taking out a payday loan for bad credit management purposes.
In fact, getting a loan under such terms is something of a knee-jerk reaction to counter mounting pressure. Rarely, if ever, will such a move alleviate the problem, and often it leads to a worse situation which prompts the borrower to opt for bankruptcy. It is possible to avoid declaring bankruptcy completely.
But exactly why is a payday loan such a bad option when it is arguably the most accessible loan type for bad credit borrowers? Well, while they do have their uses, there other options to consider that are more proactive solutions, and come with far less associated pressure.
Why Payday Loans May Not Work
Taking out a payday loan for bad credit management purposes can create more problems than it solves. For a start, the interest rate that is typically charged on this kind of loan is extremely high, ranging between 30% and 50%, depending on the lender.
What is more, the amount of time that is given to clear the debt in full is extremely short, with as little as 14 days stipulated in some contracts. This is because the loan is granted against an upcoming paycheck. And with so little time and such high interest, pressure increases dramatically, so that in the long run, it becomes difficult to avoid declaring bankruptcy.
Anyway, the size of a payday loan is small. The maximum available is $1,500, which is enough to deal with a financial emergency. And since full repayment ($1,950) is taken from a paycheck, there is little left to deal with regular monthly obligations.
Why Payday Loans May Work
Of course, there are situations where using a payday loan for bad credit management is a perfectly viable option.
For example, because they are granted with no credit checks, even applicants with the worst credit history can access the funds.
It is also possible to get the funds very quickly, with the approval process taking as little as a few minutes. This is because the only condition is that the monthly paycheck is large enough to repay the loan in full. So, once confirmation of income is provided, the lender will grant the funds.
The ambition to avoid declaring bankruptcy can also be served if the funds are used to deal with an emergency debt, which would otherwise throw finances into chaos. For example, if $1,000 is secured through a payday loan, it can be used to ensure a mortgage payment is made, or final notice on a credit card debt is dealt with.
Other Solutions To The Problem
Of course, there are those who believe bankruptcy is a practical solution to an impossible financial situation, and if getting payday loans for bad credit management purposes fails, it is hard to avoid the fate. But there are other options to consider too.
It is possible to avoid declaring bankruptcy if a consolidation loan is secured instead. This offers a constructive solution to debt problems by clearing all debts in one go and replacing them with a single loan. If the term is long enough, then the repayments can be as much as 50% less than the original monthly obligation.
It might seem that a payday loan is the only viable option before bankruptcy, but that is not true. So, take some time to consider a consolidation loan - which can be approved within 24 hours - before jumping to the highly-expensive payday option.
Hilary Bowman is a Financial Expert who specializes in Loans for People with No Credit and Bad Credit Loans
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