Payday Loans Advantages and Disadvantages
When you find yourself in a financial crisis, you may want to get a loan to help you out. Sometimes, it may be enough to help you out of the mess but the date is nowhere near payday. So instead of just waiting and leaving the problem unsolved, many people go for a payday loan. A payday loan is beneficial and you can access it when you need it. However, it has its disadvantages as well.
What is a Payday Loan?
A payday loan is a short-term loan type that allows you to access cash and repay on your next paycheck. These loans are usually granted by online lenders and the application process is pretty simple. Everything can be done online and you can have the cash in your account as soon as the next business day. Lenders do not ask for too many qualifications. They usually request for your personal information, and information concerning your employment. What matters is that you have a steady source of income and can pay back the loan on the due date. Unfortunately, the interest on this loan is quite high. This is because it is risky for the lender. Lenders do not request for collateral on this loan.
How to get a payday loan?
As mentioned earlier, the application process is simple and straightforward. You will need to complete the form and add the relevant documents. These include proof of employment, identification card, and bank details. After submitting the form, the lender will review your application and you will be informed about the status of your application. If you qualify for the loan, the lender will offer you the loan as soon as the next business day.
Advantages of Payday Loans
1. These loans are easy to obtain
With payday loans, there is no need for any back and forth communication with the lender. Once you complete the application, the lender will complete the rest of the process. There are instances where the lender may request for extra information.
2. Fast Payday Funding
Payday loans are approved the same day and the cash will be disbursed to your account that same day or by the next business day.
It is easy to apply for payday loans. The companies that operate from physical locations are usually found in most major cities. You can also apply for payday loans online. The application can be done at any time, even on weekends. However, most of them apply and fund your account by the next working day.
4. Last Resort
You can always resort to payday loans when all options are exhausted. These loans are often reliable and since the process is short and simple, you can have the funds in no time.
1. It is Expensive
Payday loans are expensive in the sense that the interest rates and fees are high. Most payday loan rates are higher than other loan options. Many borrowers only take out payday loans when there are no other options.
2. Debt Cycle
You can be caught up in a debt cycle if care is not taken. Since payday loans have high interest rates and short repayment periods, you may be tempted to take out another loan right after you have repaid the previous one. Sometimes, borrowers do not intend to take out another loan but since they have no cash and the application process is easy, they will go for another one. The debt keeps rising because the lending limit increases with every loan they take out. Since the lending limit is increasing, they will keep taking higher amounts and the interest rate keeps piling up. People eventually get completely dependent on payday loans. They repay and take out another every month to supplement their income.
As most payday lenders operate online, it has become rather difficult to assess these lenders. Several scam companies have popped up and they are scamming people under the guise of payday loans. They trick unsuspecting borrowers to pay “fees” even before they begin the loan request process. It is important to check the legitimacy of the company you are dealing with. You should also avoid paying any money to the lender before they process your loan.
You should weigh the advantages and disadvantages of getting this loan before proceeding with the application.