Patrick asked us the following question:
“Can I share my success story with you? I took a 300 dollar payday loan recently to pay for two busted tires. I want to share how I managed this loan properly so others may see that these loans can be useful when you know how to use them.” – Patrick, Rapid City, SD
Patrick works as an accounts officer for a software development company and he’s always on his toes to meet his monthly quota to sell the company’s enterprise solutions. This means driving for miles around Rapid City and its nearby cities, even up there in North Dakota, to pitch to potential corporate clients. Unfortunately, just a few days before the month’s end, Patrick busted his tires. He was still two clients short to meet his quota and worse, without a car his chances of closing two more deals were slimmer. He needed the car fixed in two days.
With his budget already spent for the regular bills, Patrick took out an easy loan and got a quick approval for a 300 dollar payday loan. He got the car fixed over the weekend and by Monday he’s back driving for miles and gets his two clients just in time before he turned over his monthly quota.
Patrick paid the 300 dollar payday loan as soon as he got his next paycheck. He paid 20% as interest plus $20 dollars in various fees, so the loan cost him $380 dollars all in all. But that’s peanuts considering that he met his quota, which made him a candidate for the quarterly bonus of twice his salary. Without a car, it would probably be more difficult for Patrick to travel the longer trips to close the deals.
His case can be replicated by a small business owner who has the opportunity to increase monthly sales, but who is short of a few hundred bucks to buy supplies. For instance, a small cake shop owner receives an extra order but she has already spent her monthly operational budget. A 300 dollar payday loan can easily meet her needs and earn her an extra client in the process.
Patrick borrowed only for an emergency. He didn’t buy a car accessory or unnecessary add-on; he used the loan to make his car run again so he could go back to work soon.
He also borrowed just the amount he needed, no more or less than a 300 dollar payday loan. Patrick calculated the amount to replace his tires so he knew how much loan to take out. Even if he knew it’s quick and easy now to get approval on payday loans even for people with a bad credit, Patrick took out only what was needed to avoid paying for more. Incidentally, to compel borrowers to limit their loan to what they can pay, some states like Washington puts a loan cap at $700 or 30% of the borrowers’ gross income.
He paid the loan on his next paycheck. This is important since many payday loans are charged with weekly fees. Patrick knew that he’s better off paying the loan fast to get back to his regular budget soon. Keep in mind that when you extend a loan, you’re also extending paying for more interest and charges.
He used the loan not as an expense, but an investment. Although the 300 dollar payday loan cost him $380, he would have missed earning the bonus had he decided to commute, which would make it more difficult for him to travel longer and faster to close the deals. In Patrick’s case, the loan actually earned him more money in the form of a bonus.
Payday loans are not as bad as the press has made it to be. Even in the UK and Canada, where these loans are popular, there are borrowers who find these loans useful rather than abusive. Furthermore, payday loans are regulated closely by the Federal Trade Commission to protect consumer interest. It is useful when you know how to manage it and when to use it. If you’re a smart borrower like Patrick, you’re unlikely to fall into a debt trap.
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