Yay or nay: 'Payday' loans for financial emergencies

ABS-CBN News

Posted at Apr 27 2016 03:35 PM | Updated as of Oct 05 2016 10:49 AM

MANILA - Availing a payday loan for financial emergencies may be convenient, but is it a wise move?

A payday loan is an amount of money lent at a high interest rate, on the agreement that it will be repaid when the borrower receives the next paycheck.

To pay for the loan, a borrower has to issue a post-dated check in the amount that he and lender has agreed upon. The lender then holds on to the check and cashes it on the agreed date, which is usually the borrower's next pay day.

Despite its convenience, Fitz Villafuerte, a registered financial planner, warned that payday loans can lead to more problems.

Whereas personal loans happen through credible, regulated financial institutions that are part of the system, getting a payday loan from people you don't know is an unpredictable practice that may leave you in a bad place.

Some lenders also require borrowers to surrender their ATMs, which can lead to problems, like lenders taking more money than what is borrowed from them.

For Villafuerte, if taking out a loan is unavoidable, then it is better to get one from your company or a bank.

"If there's a payday loan offered by the company, I would say that's the better option because at least, automatic deduction na siya sa salary mo. However, if your company does not offer that, then availing of one sa bank is also okay. However, make sure that the reason you're buying money is an emergency," he said.

He also said that building an emergency fund can help save one from living from paycheck to paycheck.

"The best way to really avoid getting a payday loan is to have money saved in the bank specifically for emergencies. It's good that payday loans are available, but make it as the last resort to get money if there is a financial emergency," Villafuerte said.