With all the talk about payday loans lately, it’s a good idea to know exactly what you’re dealing with if you are planning to take out one yourself. While some people have tried to paint payday loans in an excessively negative light, the reality is that they are actually quite the useful tool when you’re in a situation that calls for them. And according to stats, a payday loan is technically not even a high-risk product compared to other types of loans on the market.

The negative impression could be coming from people who don’t know how to take care of their finances properly, and end up finding themselves in deep financial trouble as a result of that. These are the people that are most likely to take out a payday loan in the first place too, and as a result, the bad situations are all you hear about in the press on a regular basis.

They’re Not Illegal

For some reason, some people seem to associate payday loans with loan sharks. There’s nothing illegal or predatory about a payday loan – it’s just a short-term tool to cover emergency expenses when you have no other options. They are completely legal though, and are often offered by lenders who work with traditional loan products as well. In fact, the payday loan market is among the most tightly regulated sectors of the lending industry, but more on that below.

They’re Not a “Luxury Fund”

The fact that it’s so easy to take out a payday loan can occasionally give you the wrong impression. It’s not a loan that you should be taking out on a regular basis to buy things you can’t afford immediately. If you can afford to wait until your next salary comes through, then there’s no reason to take out a payday loan in the first place. That’s another reason you hear about people with problems resulting from payday loans, too. They simply don’t use them the way they’re intended to be used.

They’re Not Free Money

On a related note, don’t treat a payday loan as an extension of your regular salary. You’re still paying that money back in the end, and sometimes the extra charges and interest rate can result in you losing a big chunk of your anticipated salary. It makes no sense to see a payday loan as “free money”, and yet, this is exactly what we see among some people. You need to have a responsible mindset and only take out a payday loan if you have a problematic situation that you can’t fix in any other way.

Repaying Is Not Impossible

As we mentioned above, the media loves to talk about people who’ve had their lives ruined because of payday loan abuse. But one look at most of those stories is often enough to paint them in a different light than what the press might be trying to push through. The thing is, a payday loan is not impossible to repay. If it was, it wouldn’t be legal in the first place.

The difficulty in paying it back is associated with poor planning and a lack of financial responsibility in most cases. As long as you know what you’re getting yourself into, and use all resources available to you to their full potential, there’s nothing really bad about taking out a payday loan.

The Market Is Regulated Tightly

As we mentioned above, there is actually quite a lot of control over payday loans in most parts of the world where they are available. You can expect your lenders to be regulated tightly by authorities, and if you notice anything unusual about the way they’re handling your deal, you can easily report that incident to the appropriate legal entities. Because of this, you can also expect most payday lenders to be very transparent in the way they work with you, and there’s little possibility that you’ll get misled about any factors of the deal. No responsible lender would want to jeopardize their own business in this manner, after all.

So the next time you’re in urgent need of some extra money, don’t completely disregard the option of taking out a payday loan. It might not be the ideal solution to every situation, but it definitely does have its appropriate uses, and can work very well if you play your cards right. And in most cases, a payday loan is something you’ll only need to work with once. If you fix your situation afterwards, there’s not much that can go wrong that would require you to get another one.


A payday loan is something that should be approached with caution if you’re not experienced with handling your finances. While it’s a useful tool by default, it also has the potential to affect your situation in a very bad way if you’re not careful. There are certain factors that you should keep in mind at all times, and be prepared to get the loan paid off as quickly as possible in order to prevent any complications in the future.

The most common question people usually have regarding these loans is about their overall cost. It’s not rare to hear stories about people who’ve gone into deep debt as a result of taking out a payday loan, which can sound scary. But once you dig into those stories a bit, some common pattern of irresponsible behaviour usually shows up. A payday loan doesn’t have to be expensive if you use it the way it’s intended to be used in the first place.

How It Works

Payday loans are designed to be paid off much faster than regular ones. As the name implies, the typical duration of a loan of this type is until your next pay check – or roughly a month. There might be some exceptions, but that’s how most lenders typically work. Because of that, payday loans also have a very high interest rate attached to them. The consequences for not paying off a payday loan on time can be severe, and you should not underestimate how quickly that interest can stack up if you’re not careful.

The Limitations of Bad Credit Score

If you have a bad credit score, this means you’ve done some things in the past which can make you seem like a higher risk than a regular customer. Defaulting on a previous loan is a common example, but even smaller things can still play a role in lowering your credit score. Being late on your bill payments is something that can mess up your situation quite fast.

People with low credit scores are typically forced to look into payday loans as their only viable option. This can contribute to the negative reputation of these loans, as the kinds of people who need to use them are also the ones who are typically most predisposed to having financial problems in the first place.

It’s Supposed to Be for Emergencies

Another problem regarding the way some people use payday loans is that they’re not supposed to be used for luxury purchases and other similar expenses. A payday loan is a tool that can get you out of a tough financial situation on short notice, and that’s why it ends up so expensive if you have to prolong its term. If you have access to more traditional loans on the market, you should use those instead for any purchases that you can’t describe as urgent. There’s a surprisingly large number of people who take out payday loans to buy new phones and other gadgets. It should go without saying that they represent a large portion of those with perpetual financial problems too.

The Lender’s Perspective

Look at things from the perspective of the lender. They’re letting people borrow money on short notice, and they need to ensure that they profit in the long run. Defaulting on a payday loan can happen, and the lender is out of a good chunk of money in that case. And when the possibility of dealing with people who are prone to defaulting is higher, the lender has to do something to compensate for the additional projected losses. In the end, it boils down to simple business calculations.

Regulations

There are also certain regulations regarding the way payday loans are supposed to work. In some areas, there is very strict control over them, and lenders don’t have much freedom in setting the terms of their products. Which is a good thing for you in the end – it means it’s far less likely to end up dealing with a predatory lender who will try to exploit a bad situation in your life for their own personal profit. In tightly regulated markets, the chances of this happening are next to none.

Of course, you still have to keep your eyes open at all times to ensure that you don’t get misled about the conditions of a deal. Sometimes, this will happen without the lender even having any malicious intent – it will simply be the result of you failing to note an important point in the conditions of the loan. You only have yourself to blame in those cases though, and incidents like that should not create a negative association with payday loans in your head. In the end, they’re just a tool. Whether people use that tool correctly is up to them.