As much as you want to remain financially stable and free, the reality is not always a reflection of your dreams. People who do not have any savings in their accounts are often faced with the worst financial troubles. A medical emergency or a theft can be devastating for them because they don’t have a financial cushion to rest their back on. However, there are dozens of ways for people to fight the immediate financial hardships, and payday loans happen to be one of those solutions. Let’s take a look at what they are and what pros and cons they offer.
What Are Payday Loans
They are one of the fastest loans available to anyone on a short-term basis. You can guess a few things from the name. Payday loan is called that because you promise to return the money you have borrowed when you receive your next paycheck. Since you are going to pay the money back from your next salary, the amount can only be of a certain size. And yes, you can only borrow a small part of your monthly salary. Usually, the amount can be anything from $100 to $1000 or even more depending on the lender, state, and other factors.
When you go for a payday loan, you don’t necessarily have to prove your high credit score. For that reason, it remains one of the most popular types of short-term loans for those who have a bad credit score. You will submit a post-dated check, which the lender will keep to withdraw the money from your account on your promised payday. As soon as the amount arrives in your account, the lender takes the loan amount, the interest rate, and any other fees that apply. Usually, the lender will require a very short application and your salary slips to know how much you get paid before forwarding the loan.
Your loan application can be accepted within 24 hours. High interest rates remain the most criticized part of payday loans.
Pros of Payday Loans
Quick Application Process
One of the things that make payday loans attractive for individuals is the quick application process. With most other types of loans, you have to go through a long application process. Even after submitting the application, the lender might take a couple of days for approval. On the other hand, a payday loan can be given to you on an instant basis. You complete the application, submit it to the lender, and within a few hours you have the money in your hand. Today, there are many online lenders giving payday loans too.
No Credit Score Needed
A big barrier for most of the people who need loan is credit score. If you don’t have a good credit score, you can’t get the loan. However, you don’t have to present your credit score when it comes to payday loans. You can just go, submit some basic documents including your pay stubs, and get the loan by meeting very basic requirements.
Small Amount Available
As you can already tell, payday loans are meant to cover expenses that suddenly arrive. You might need some extra cash due to an emergency. Maybe a medical emergency has arrived or perhaps someone stole your phone and you need one for your work. You can’t really go to the bank and apply for loan of just $300 or $400. For a small amount that you need on an instant basis, you can just go with the payday loans.
Cons of Payday Loans
High Interest Rates
The biggest disadvantage of payday loans is that you have to pay a huge interest rate on a small amount that you borrow. There is an amount set that the lender will charge you as interest on every $100. Even if that amount is only $20, you can imagine how much you will be paying for borrowing $500. Keep in mind that you are paying that interest rate only for a few weeks or a month at maximum. If you annualize that amount, it will be huge.
Of course, when you go for payday loans, you have to do a proper research. It is not that someone is trying to force you to get this type of a loan. If you have alternatives available, you should definitely go for them. However, when you go for a payday loan, you will see that it can get you into a vicious cycle. If you can’t manage an extra $300 from your paycheck this month, how will you manage the same amount plus the additional interest from the next paycheck?
Choosing the Right Lender
Before you even think too much about the payday loans, you should focus on the lender you are going to get the money from. Before you finalize your lender, make sure that:
- They are legit people who have helped other customers in the past
- They are transparent about the terms and conditions
- They are charging you a realistic interest rate on the amount they are forwarding you
- They can provide you with the loan amount as immediately as you need it
- They are not luring you into getting the loan and discussing your situation with you to advise you how you can solve the problem with alternatives if possible
- They have an online presence so you can apply for the loan from the comfort of your home
While you are online, it is also recommendable that you look at the reviews from customers who have obtained payday loans from the same lender. If they are happy with the service, you too should not have any problems.
Payday loans are only a temporary solution to your financial problems. Before you go for it or any other type of loan, you have to do some evaluation of reasons and causes that pushed you into borrowing money. You have to know that getting payday loans can also be a sign that you don’t manage your money properly. However, when you need the money, you just need it – there is no other way around it. In the end, make sure that you don’t borrow a penny more than the amount you need. If you need exactly $200, get a loan of $200 only.