Payday loans can be used for many different purposes as these are unsecured loans. However, one of the most common uses of payday loans is the cancellation of due bills to avoid interruption of household services like electricity, water, telephone, etc. But the use of payday loans for cancelling due bills implies some perils that should be taken into account when considering your alternatives. Here is an explanation of the reason why the use of payday loans for this purpose is discouraged by financial advisors.
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Payday Loan Terms
The main problem for payday loans is that they are designed for an emergency where the risk team of the financial institution has little to no time to evaluate the risk implied in the transaction and thus defaults the terms to those associated with the higher risk possible. This implies of course that higher returns are needed to compensate for that risk and thus, the interest rate charged for the loan is usually elevated.
The problem is that if you need the money to cancel due bills, chances are that your income does not provide you with sufficient funds to cope with emergency situations and thus, unless you make the needed sacrifices to obtain a reduction of your expenses, you will not be able to afford the payday loan repayment either and you risk ruining your credit score and history just for making a bad move with your finances.
Due Dates Of Payday Loans
Another issue with payday loans is that these loans have short repayment programs. Most of them provide financing for a few days till the applicant’s payday arrives. This of course implies a minimal amount of time for raising the money needed to cancel the loan and promotes certain practice that consists on paying only the loan’s fee and renewing the loan for another period. This only contributes to accumulating interests and thus debt.
And even those cash advance loans that provide financing with a repayment schedule of a couple of months, do not provide much time for raising money to repay the loan or enough time to recover from a financial crisis. Therefore, the due date of payday loans constitutes another limitation that should be taken into account when considering these loans as means of funding the cancellation of due bills.
Alternative Repayment Options For Due Bills
Since the repayment of due bills with payday loans is not suggested, there needs to be alternatives for such product. We usually suggest, when paying in cash is not an option, to finance the cancellation of bills with credit cards or personal loans. Some banks and financial institutions provide pre-approved personal loans with an interest rate that even though it may seem high it is significantly lower than the rate charged for payday loans because the rate charged on payday loans by means of the fees, if expressed in APR would equal to 120% which is extremely higher than the rate charged for unsecured personal loans and credit card financing.