Your Guide to Using Payday Loans Responsibly

Lately, payday loans have received some bad press.

From their higher-than-normal interest rates to even being cited as predatory lenders, the payday loan industry has been beaten up quite a bit by its critics.

So, why have payday lenders been the target of this attack? The reason is because some payday loan borrowers have not used payday loans responsibly and as a result, have fallen into a cycle of debt.

Some consumer groups contend that all payday loans are negative and should be avoided at all costs. At the same time, many people have benefited from the convenience of payday loans.

Sure, some people can hop on over to their local bank to obtain a loan, but with today's credit crunch, the number of individuals able to get a loan from a bank is pretty small.

And what about credit card cash advances - do you really want to tie up your credit cards with these high-interest balances that can take a significant amount of time to finally repay?

Ultimately, payday loans can serve as a convenient and quick means to secure a short-term loan without the hassles associated with other types of loans. The trick is you just need to know how to use them responsibly.

When You Should Use a Payday Loan

The first step in responsible payday loan use is knowing when to secure a payday loan.

Payday loans are intended to be repaid within a very short amount of time, and as such, do come with relatively high fees. For this reason, payday loans should not be used to pay for unnecessary items, like that great pair of shoes you have been eyeing.

Payday loans should be used to help with unexpected expenses that need to be paid right away.

Let's say that your child needs some prescription medicine for which you would have to pay up-front. At the same time, your electricity bill is due and you could be left in the dark if it is not paid on time. You know that you will have the funds to cover your child's prescription on your next payday, but your child cannot wait.

This example would be an appropriate use of a payday loan. Both expenses are vital, and you know that you would be able to repay the loan when you get your next paycheck.

No. 1 Payday Loan Rule: Repay the Loan on Time

The primary risk associated with payday loans is the amount of fees that can accumulate if the payday loan borrower is not careful.

Payday loans already come with interest rates that are higher than normal. For example, a 15 percent fee on a $500 loan would equal $75, or a 460 percent APR. While the 460 APR is relatively high, the $75 fee is manageable for many people.

However, if you are not able to repay the loan on time and as a result, roll it over to another due date, you likely will be hit with another $75 charge. At that point, your total fees would equal $150 and your APR would increase to 920 percent.

To keep your payday loan APR to a minimum, it is important that you repay the payday loan by its original due date and not roll the loan over and over again.