Imagine you’re driving to work. You’ve got your cup of coffee steaming in the cupholder and your favorite podcast is playing while you negotiate the stop-and-go rush hour traffic.
Unfortunately, the driver behind you is a little more go than stop and they slam into your rear bumper.
No one’s injured, but your car needs repairs. You take your car to the shop and they give you an estimate of $1,000.
Would you be able to pay it?
For most Americans, the answer is no. In a 2018 survey, 61% of Americans said they would be unable to cover a $1,000 emergency.
Most of that number said they’d put it on a credit card. But if your cards are maxed out, that might not be an option.
You might need a bad credit loan to cover this short term need. If you have an excellent score, you’ll have plenty of options for loan.
But if not, a payday loan online can be a great help when you have no other options. But what’s the best way to use your $1,000 loan?
Read on, as we try to help you make the most of that $1,000.
How Do Payday Loans Work?
Payday loans are small, short-term personal loans online. Many people use payday loans when they need a few hundred dollars but payday is a couple days away, hence the name.
Unlike installment loans, which are often paid off over several months or even years, you have to pay off payday loans quickly.
Most payday loans are due back in full in two to four weeks—right around payday.
If you don’t pay it back on time, you will be on the hook to pay back the loan with exorbitant interest rates. The average payday loan has an interest rate of 391%. However, if you pay it back before the two-week period has ended, you pay no interest.
Unfortunately, the Consumer Financial Protection Bureau says 80% of payday loans are not paid back during that time.
Due to these high-interest rates, many people say payday loans are predatory. However, these high-interest rates are inherent to small, risky loans. This is why it’s imperative as a consumer to make sure that you’ll be able to repay the payday loan when it comes due. Otherwise, these fees will add up, and soon you’ll be paying many times the amount originally borrowed!
How to Use Your Payday Loan
It’s paramount that you use your payday loan no credit check wisely to avoid these high-interest payments. Here’s how to get the most out of your payday loan.
Don’t Borrow More Than You Need
It bears repeating: the complete amount of your payday online loan is typically due within two weeks. They’re designed to get you through to your next payday.
So if you take out a $1,000 loan but your paycheck is only $700, you won’t be able to pay back the loan.
Don’t over borrow. You may be able to borrow up to $5,000 from a payday lender, but if you can’t pay it back in two weeks, you’ll face nasty interest payments.
Do NOT Spend It On Nonessentials
We all know that payday feeling.
Your bank account is looking healthy, so you treat yourself to something nice. Maybe you buy a video game or take that special someone out to a nice dinner.
In fact, a 2010 study found that our buying habits are directly correlated to when we get paid.
When your payday loan hits your bank account, you might have the same feeling at first. You check your account, and you feel like you have money to blow.
If you’re not careful, you can find yourself spending more than your coming paycheck. And we know what that means: interest.
A payday loan is not an excuse to treat yourself. This is an emergency measure to help you pay off urgent bills when you’re short on cash.
Exercise self-control and only use your payday loan on necessities.
Do Not Use a Payday Loan To Invest
As the old saying goes, “it takes money to make money.”
As cliche as it sounds, it’s true. Growing wealth requires capital to invest into opportunities. You have to pay business costs before you can make a profit.
Most of us have had someone come to us with an opportunity that sounds great. A once in a lifetime, can’t-miss investment. If you just had $1,000, you could turn that money into $10,000 in a hurry.
It might be tempting to take out a personal loan no credit check to pay for that investment. But no matter how sure that opportunity is, the chances that you will make your money back in two-weeks are slim to none.
The chances that your return will beat the 391% interest rate are even slimmer.
There’s nothing wrong with investing in promising business opportunities, but you should never use a payday loan to fund that investment.
Pay Down Your Most Urgent Payments First
Not every due date carries the same urgency.
In many cases, if you miss a payment on your electrical bill, you can pay it late with a small fee. But if you’re late on a credit card payment, they’ll increase your interest rate, causing you to pay much more over time.
Many of your monthly expenses might not have dire consequences if you’re a little late. You have some wiggle room there.
Let’s say you don’t have enough to pay both your rent and your car payment. If your landlord will only add a $5 late payment but your bank will repossess your car if you miss a payment, choose your car payment.
Look at all your expenses and the consequences of a late payment. Use your payday loan to pay off the most urgent bills first, then pay the rest when you get back on your feet.
Need A $1,000 Loan?
If you’re caught between an empty bank account and looming bill payments, a payday loan can be a great tool for finding your financial footing.
If you’re in a bind and need a $1,000 loan to get you to payday, see if your situation warrants a payday loan.