Pay day loans are short term unsecured loans charged at a higher interest rate. They take a shorter period to process and need fewer requirements making them accessible to anyone above eighteen who has an income and legal identification. Some payday lenders though do not verify if one has an income or their credit history/score.
The repayment period is agreed upon but mostly varies from fifteen to thirty days and the money is below $500 or below $1000 depending on your states laws. Understanding the advantages and disadvantages of this easy cash advance system before committing is however, very important.
Advantages
The main advantage of pay day loans is that they are so easy to access as the requirements are so simple. Because of these low requirements, people who may not qualify for loans in other credit institutions are eligible for pay day loans. These loans can be processed and accessed within hours after application (less than 72 hours), as long as there is some form of identification and a bank account.
Payday loans can also be of great help when it comes to settling bills that cannot wait for the next paycheck or emergency situations. Other borrowers also find them extremely necessary as they give short term credit especially when you don't have savings.
Institutions that offer pay day loans are readily available online or even in some banks. Because of the little money borrowed, it is easy to pay back the loan by cash at the lending office, electronic transfer or even by using a personal check.
Disadvantages
Because of the simple requirements, these loans are likely to be taken by those with more difficulty re paying and thus leave them buried deep into debt. The interest rates when compared to those of normal loans are way higher (up to 1000% more). The rate of accumulation in case of differed payment is also higher and grows faster.
As easy as payday loans are, if you don't have a permanent workplace or a bank account you may not get the loan.
Financing charges that range from 15%-40% for every $100 borrowed are often excluded and when added, they take the interest rate even higher.
One might be forced to extend the original loan at even higher costs if the payment period is differed, or even take another loan. When this happens, some people will take up loans with different lenders to settle previous debts and it becomes a cycle.
Are payday loans the best source of lending? Be sure to have looked at all other financial institutions and take a payday loan as the last resort. When the borrower is well aware of the high interest rates and only needs to borrow money before the next paycheck, it is important to first look at the different lenders as the amount borrowed, interest rates and other terms vary widely. Do not take more than what you need. Once you get your next paycheck, prioritize the settling of your payday loan to avoid rolling over to the next month.
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