17 Sep Payday Loans: Pros and Cons of Payday Loans
While believers of payday loans say they grant loan access to people with poor or no credit, critics say these “short term” loans unfairly target these bad credits people and trap people into lengthy debt cycles.
But what is the truth?
Here’s a breakdown to help you figure things out for yourself. In this blog, we’ll explore what a payday loan is and how it works, the Pros and Cons of Payday Loans, along with some responsible alternatives to payday lending.
What is a Payday Loan?
A Payday Loan is a short-term loan available to those who may have bad credit and needs a little cash quickly to make ends meet or cover an emergency. The usual amount of this loan is between $50 and $500.
When you apply for a payday loan, you’ll typically be asked to provide proof of your income and your checking account information.
Many payday loans have a 14-day duration, although the due date of the loan may be adjusted to match the borrower’s payday.
Do Payday Loans Have High Fees?
These small-dollar, high-cost loans usually charge triple-digit Annual Percentage Rates (APRs), and payments are typically due within two weeks—or close to your next payday. This is the reason; these loans are also called Cash Advance Loans or check advance loans.
Payday lenders charge borrowers extremely high levels of interest that can range up to 500% in Annual Percentage Yield (APR). Now let’s move to the next section to look at some Pros and Cons of Payday Loans.
Pros and Cons of Payday Loans
Before you agree to it, it’s essential to know more about the Pros and Cons of Payday Loans to see if it’s the right cash fix for you or not.
Pros of A Payday Loan
Payday loans aren’t all bad. They can help you out in emergencies and other unexpected bills you cannot shoulder immediately. If you are prepared to take on the payments, it can support you along the way. Here are some of the Pros or Advantages of Payday Loans.
# Pro 1: Get the cash on the same day as your application
People are drawn to payday loans because of the convenience of its offer. You can send your application today and walk out with the money in hand before night. The bank can also deposit the funds to your account within the day or the following business day.
# Pro 2: Take care of your financial needs right away
It can be useful to settle bills and other debts if you take out one today. Enjoy a momentary sense of relief after paying obligations, especially those that are critical and need to be paid as soon as possible.
# Pro 3: They have fewer requirements than other loans
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 requirements to apply.
# Pro 4: Easy payments
Banks have made it easy for borrowers to settle a payday loan. Agree on a date, usually a payday, and the bank will automatically deduct the amount from your salary. In the meantime, you can worry about more important things.
# Pro 5: They don’t check your credit
Unlike traditional loans where you need good credit to be approved, payday loans don’t require a credit history. Since they don’t pull your credit, that also means no hard credit inquiry, which can lower your credit score by several points.
Cons of A Payday Loan
The good news about a Payday loan is, you used a payday loan to settle your previous debt. The bad news is that now, you have an entirely new debt in front of you and that could be more significant and scarier than the last. This is essentially the con or Dangers of Payday Loans. However, others are:
#Con 1: The need to pay it back ASAP
Since it’s a short-term loan, you need to pay it as soon as possible. And it can be a problem for a borrower who’s facing financial difficulties.
#Con 2: Ridiculously High-interest rates
Every convenience comes with a price, especially with payday loans. They are known for their high-interest rates, so you will have to pay back at least 125% of the principal loan amount. There are even cases wherein the interest rate climbed up to 800% when you add finance charges on top of everything else. This is the reason Why Are Payday Loans Bad.
#Con 3: Negatively affects your credit score
Failing to pay back a Payday Loan can result in debt. We mentioned above how payday loans are deducted from your account. So, if you fail to provide enough funds in time for the day of payment, you can expect the penalty or late fees to come. The longer you stay in debt, the bigger chance it decreases your score.
#Con 4: Quickly buries you in debt Cycle
It’s easy for you, to get into debt Cycle when you’re in the hole for more than a thousand dollars and have no means to pay it back. However, there are ways to help you get out of debt, but it’s always better to prevent it rather than curing it.
#Con 5: Payday Loans Target the Poor Credit, Low-income people
According to a report, it was found that payday lenders are mostly located in poor, low-income people. Poor people who don’t have much-saved money to meet their sudden expenses are forced to use Payday Loans. This is the reason, why it’s easy for lenders to trap them, in their cycle of debt. Problems with Payday Lenders is that each time you extend or are unable to a loan, they charge an additional fee, increasing your out-of-pocket costs for borrowing the money.
So, this was all about the Pros and Cons of Payday Loans. We hope that after reading this section, you can now make a wise decision whether to apply for a Payday Loan or not.
However, to help you further, we have discussed some Alternatives to Payday Loans as well. Let’s have a look at these alternatives.
Alternatives to Payday Loans
Financial experts caution against payday loans — particularly if there’s any chance that the borrower can’t repay the loan immediately — and recommend that they seek one of the many alternative lending sources available instead.
Here is a few alternatives Payday Loan Example that may meet your needs and save you money.
Bad Credit Personal Loans
Some personal lenders focus on working with people with bad credit. Whether you need to cover some basic expenses, an emergency, or consolidate debt, you can usually get the cash you need.
And while your interest rates will be higher than on other personal loans, they’re much lower than what you’ll get with a payday loan.
Family or Friends
Asking a loved one for financial assistance is never a fun conversation. But if the alternative is being driven deeper in debt, it may be worth it. Just be sure to create an official agreement and stick to it to avoid damaging your relationship.
Bad-Credit Credit Cards
Most credit cards are designed for people with bad credit that require a security deposit, which won’t help your cash shortage. But some credit card issuers also offer unsecured credit cards with low credit requirements.
Retail credit cards, for instance, are often in reach for people with bad credit. And while they typically come with low credit limits, many of them can be used outside the store.
Final Thoughts
When you’re in need of cash, it can be tempting to fill out a five-minute application to get the money you need through a payday loan. But the quickest way isn’t always the best way, and you could end up paying for that single “payday” loan for years to come.
So before visiting the closest cash advance store, be sure to take some time to look over other alternative options first.
We now hope that you have understood about the Pros and Cons of Payday Loans. If you have any queries regarding this blog, then feel free to connect with us through the comment section box below.
Till then, stay tuned……..
Additional Reading: Payday Loans Vs. Personal Loans
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