In today’s economy, it can be difficult to make ends meet. If you find yourself in a financial bind, a payday loan may seem like the perfect solution. However, before you take out a payday loan, it is important to understand the pros and cons of this type of borrowing. This blog post will explore the advantages and disadvantages of payday loans.
What Are Payday Loans?
Payday loans are small cash loans that short term loan lenders provide. Like any financial option, there are pros and cons to payday loans. They are advertised as fast payday loans that are quick and convenient in these situations.
These lenders are often located online, and have unconventionally high charge rates compare to traditional loan options. If you are considering borrowing, you will need to consider payday loans advantages and disadvantages.
Pros Of Payday Loans
There are advantages to taking out small cash loans or fast payday loans through short term loan lenders. These advantages stand against traditional loan options and will win every time because they adapt to the growing need for immediacy and convenience that is developing in today’s society. For most of the population that lives paycheck, these advantages are enough to have customers hearing out the loan terms and agreeing to them. Below are the advantages that customers seek when applying for payday loans.
1. Quick Cash
With these payday loans, getting cash quickly is a feature that payday loans have over its traditional competitors, requiring an application and then a check to submit to your bank account. Both the approval process and the cash may deliver in less than 24 hours for some applicants.
This is because the cash is directly deposited into your bank account if the information is provided. If you seek an emergency and need instant cash for a bill or just to get through to your next paycheck, this is a pro to consider for payday loans.
2. Less Requirements
Traditional lenders usually require a Social Security number, photo ID, proof of income, a credit check and will verify your ability to repay a loan. Unlike traditional personal loans, most “fast cash” loans have fewer application requirements.
Generally, all you need to apply for a payday loan is to:
- Be at least 18 years of age
- Have a government-issued ID or Social Security number
- Have a regular job or another regular source of income
- Have an active bank account
While having fewer requirements makes getting cash more convenient, keep in mind that the additional requirements from banks and other lenders were often put in place to help protect you about a personal loan.
3. Unsecured Loans
Unlike a car title loan, traditional auto loan or mortgage, payday loans are not secured by personal property. This means that if you default, the lender can’t seize your property as a consequence.
While not secured, payday loan lenders often have access to your bank account as a loan condition, which is a different type of risk. They can also take other measures, such as sending your debt to collections or taking you to court over outstanding balances.
4. Relatively Easy Approval Terms
Getting approved for a payday loan is not as hard or time-consuming as it is for a traditional loan. In fact, most applicants are quickly and easily approved for the loan. This is a leading advantage for small cash loans and fast payday loans that short term loan lenders offer.
Some of these short term payday lenders will peek at your credit with a soft pullover credit. This means that a hard inquiry is not pulled to negatively impact your credit score. What these lenders are often seeking are things like verifying income.
Pay stubs and proof of employment are more critical to the approval of your application than your credit score. Almost anyone with a steady job can apply for a payday loan, after simply answering a handful of questions. These loan applications are also much more general than traditional options, leaving room for the customer to be as private as they need to be regarding their loan.
Cons of Payday Loans
Like all good finance options, concerning features balance out those attractive advantages. As accessible as something like a payday loan is, it can be too good to be true. Because of the customers that these short term loan lenders attract, the disadvantages can further damage these customers and their financial states.
1. High-Interest Rates and Additional Fees
Of all the pros and cons of payday loans, the fees and rates of these small cash loans and fast payday loans are much higher than standard loan rates. Some customers find an interest rate at fifty percent of the loan, or even one hundred percent. By the time the loan is repaid, the amount borrowed and the interest is a total of twice the original loan or more.
2. Short Repayment Terms
Payday loans are not meant to extend more than fourteen days. When a payday loan is contracted, the customer will repay the total amount with the next paycheck. When a customer is desperate for that emergency loan, these terms seem to be doable at the moment. However, many of these customers find themselves at a disadvantage.
Because the majority of the next check is required to pay the balance owed on the payday loan, many of these payday loan borrowers pay the balance owed on the payday loan but then take out another loan and repeat the process. Hence, they can lead to bad credit or put you in a debt cycle.
3. Can Sue You For Repayment
Just like other online lenders, if you fail to pay a payday lender for long enough, they can take you to court and try to get a judgment against you for failure to repay a debt. If a decision is ordered, you could face wage garnishment, imprisonment or other consequences.
Keep in mind, however, that legal battles are expensive. In the case of small-pounds loans, it’s not always worth the time and money involved for the lender to sue. However, some companies or debt collectors will threaten to sue or threaten wage garnishment to scare you into paying them back quickly.
Payday loans are a quick and convenient way to get cash when you need it. We have explained abovepayday loans advantages and disadvantages. Make an informed decision about whether or not these short-term loans are suitable for your needs.