Online Loans: Best Way to Use Them Wisely And Stay Out of Trouble

Today online loans are easy to secure if you have a job and bank account. All you need is to fill up an online application form with personal and work data and you can get approval on the same day and usually without a hitch. But online loans have higher interest rate and stiffer penalties. Jennifer is asking if it’s wise to get online loans at all.

I’m a single mom with an average income job. I often find myself at a financial stress every end of quarter as I have to pay for school fees, quarterly insurance fees, and the nonstop mortgage on the house. I thought there must be a better way to handle my budget so now I’m thinking of online loans to see me through the next quarter. I’ve heard stories of people paying a lot more for online loans though. Are there “safety” rules for online loans? – Jennifer from Cleveland, OH

Well, Jennifer, online loans–these are similar in the UK and Canada where they are popular–are always recommended in times of emergencies. Here are 5 things to remember when getting online loans from a direct lender.

1 Use it for real emergencies

Medical emergencies undoubtedly call for extra cash on hand fast. It can pay for medicines, hospitalization, and doctor’s fees without delay. But there are also non-life threatening emergencies. For instance, paying for rent, mortgage or utilities is also critical. You can’t live comfortably without these basic necessities. Beyond these examples, however, you have to be critical if your situation is an emergency or it can be delayed until the next payday.

Some financial obligations can be delayed until you save up for them as long as it doesn’t compromise your situation. Maybe you can commute for now while the car awaits repair. You can also patch up a broken window in the room with a wooden plank or something you have in the garage meantime that a glass replacement is out of the budget.

2 Only borrow what you need

Borrow only what you need and not a single dollar more.

Online loans are easy  and quick to get today where sometimes you can borrow more than the allowable amount. Be wary though; this can be a trap. A higher interest comes with a higher loan, and lenders love that. When you default, you’ll be penalized with more fees. Some unscrupulous lenders would deliberately set you up to default so they can issue penalties, which are expectedly higher than interest rates in the long run.

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3 Pay it back ASAP

No matter how small, online loans should be paid on your next pay check. Don’t delay it. The penalties for defaults or late payments are high (the interest is stiff to start with) so prioritize this loan. Even if the lender agrees to give you an extension, don’t celebrate. That means you’ll be paying for more out of this loan. Instead of asking for an extension, exhaust all means to get it paid asap.

The average borrowers of online loans according to Pew Charitable Trust’s Safe Small-Dollar Loans Research Project  pays off their debt in five months. That’s too long. You’re losing money from each payday that you delay the loan, money that you could have saved for better use.

4 Lower your cost of living

Ironically, the best advice that I can give you about online loans is not to get one, especially if you have bad credit. If you’re tight on budget, consider lowering your expenses. Make a few sacrifices than be tempted to get easy online loans at once. Maybe you can withstand the summer heat and turn off the air conditioning to save on bills (use a cooler instead). You can also limit eating out, which is more expensive than preparing meals at home. Find ways where you can cut costs and you may not need to get a loan. You’ll be surprised how small expenses like having your cup of coffee outside can pile up in a month.

5 Never make a loan for leisure spending

It’s tempting to get online loans now to buy a new phone or spend it for a vacation. Even if you are confident that you can pay on time, don’t make the loan, especially if you’re looking at the next pay check to pay off the debt. What if you lose your job? What if a real emergency pops up? A lot of things can happen inside a week. It’s best to train yourself to use money wisely, and you’re more likely to develop a healthy financial mindset that’s built on savings and not on spending.


Online loans are best used where the situation calls for a real emergency. It’s meant to help you through the bad times, not trap you in it.

Category: Questions & Answers


  • Rowel Patton says:

    There’s a rule of thumb to know if your case is an emergency. Can you survive it without taking out a loan? If yes, then don’t take out a loan. In some instances, the worse thing than not taking out a loan is taking out a loan that you cannot pay. It will send you down a debt spiral if you’re not careful.

  • Sony Tamatsuke says:

    Tip no. 5 is almost hard to follow during the holiday season. In fact, many borrowers might have already gone on a Black Friday spree. They’ll soon find out how foolish it is to use loans for unnecessary purchases. I know it’s not my business, but seeing people ruin their financial health only to depend on welfare is getting on my nerves.

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