Payday Loans - Pros And Cons
A payday loan is a very short-term loan, designed to help you get immediate access to additional cash to pay for an unexpected expense such as car trouble, an injury, or a family illness. In return, you agree to pay back the money, plus interest, on your next payday.
The Pros of Payday Loans
The most obvious benefit of a payday loan is the immediate access to money, so you can pay whatever urgent bill or expense has suddenly come up. You don't need to wait until your next payday, which may be up to a month away.
Nowadays there are many online lenders available, so you are not limited to the one or two lenders within travelling distance of your home. You can shop around and compare different lenders, get online quotes, and lodge your application - all outside of normal work hours.
Because payday loans are for relatively small amounts of money that can be repaid from a single pay packet, credit checks are not required. A bad credit history will not affect you, and you will not need to put up any security or collateral. For this reason, payday loans are sometimes referred to as bad credit loans.
The Cons of Payday Loans
Like any tool, payday loans do have their downsides. Because the loans are for a relatively small amount over a very short time, the lender needs to charge a high interest rate to cover their costs of administration. They also need to factor in the high risk of providing unsecured loans.
If you aren't able to repay the loan on time, most lenders will offer an extension. The fees and interest can very quickly snowball, though, and you could end up owing double or even triple the original loan amount.
To prove to the lender that you can repay the loan amount, you will need to have some kind of regular employment and a salary or wage history. Your income level will also determine the maximum amount you can borrow.
Like any tool, payday loans have legitimate uses and can be a huge help if used responsibly. If you aren't careful, though, misuse of this tool can get you into even more financial trouble than you already have.