Payday Loans: Pros and Cons
Payday loans are unsecured cash advances provided by a lender with no attached collateral or credit check. While they are fairly easy to obtain, payday loans carry with them a fair share of risks that all borrowers should be aware of.
Payday Loan Sources
Rather than coming from a bank like many other loans, payday loans come from independent lenders who are able to offer these fast-cash loans by tacking on sizable fees and interest. It is even possible to complete the whole process of getting a payday loan entirely on the Internet. However, beware of who you borrow from and make sure you understand all of the parameters of the payday loan.
Pros of Payday Loans
The most obvious benefits of payday loans are that they are easy to obtain and they provide cash almost instantly. Payday loans can also be seen as beneficial because of the following reasons:
- payday loans do not require a credit check
- almost anybody with proof of a job and a working bank account is eligible for a payday loan
- payday loans are intended for short-term use, meaning you will not suffer financial damage as long as you are able to repay the loan in the time frame set forth
Cons of Payday Loans
Payday loans are quite an expensive form of cash advance. There are a number of reasons why payday loans are viewed a dangerous to your personal finances, including:
most lenders tack on a fee of about $30 to $40 per hundred dollars that they lend.
the pay back time is quite short; if you are unable to pay back the money within this time frame you will be penalized with exorbitantly high interest rates.
the lender makes a profit by charging high interest rates incase the high-risk loan goes bad. This could spoil your credit record for quite a long time.
How to get a Payday Loan
After learning about the pros and cons of these high-risk loans, you should now know how to obtain one should you find yourself in a desperate situation for whatever reason.
Step 1 - Shop Around
Different lenders offer different rates; don't settle for the first lender you talk to, ask around to find the best deal regarding pay back terms and annual interest rates.
Step 2 - Sign the Paperwork
The paperwork involved may contain terms or jargon that you are unfamiliar with. Ask questions and never sign a document without fully understanding it.
Step 3 - How to Get the Money
Many payday loans utilize direct deposit into your bank account. If you do not want to do this, ask about other options such as receiving a check or cash from the lender.
Step 4 - Pay Back the Money
Do not take out more money than you will realistically be able to pay back given the time frame. Pay back all of the loan plus the fees associated with it as soon as you possibly can; this will help you to avoid being stuck with interest rates that can add up to as much as 300% per year.
Why You Should be Wary of Payday Loans
Payday loans should be utilized very cautiously and only as a last resort when you are in need of money. The only time payday loans are financially efficient is if you need a small amount of money that you are certain you will be able to pay back within two or three weeks (the typical pay back time). When not used correctly, payday loans can ruin your credit record and create a disaster to your personal finances.
Student Loans
- 3 Factors that Contribute to Fluctuating Interest Rates on Student Loans
- What are the Consequences of Defaulting on a Federal Student Loan?
- What Happens when You Default on a Private Student Loan?
- Federal vs. Private: Comparing Student Loan Interest Rate
- Can You Get a Private Student Loan with No Cosigner?
