Payday loans are a popular method that working people utilize to obtain a small amount of money in a short amount of time. There are many benefits to using payday loans, or cash advances, but there are many disadvantages, as well.
Payday Loan Benefits
There are some distinct advantages that accompany the use of cash advances. They are very quick to apply for and receive, and may be used however the borrower sees fit.
• Fast: Sometimes a person needs a small amount of cash quickly, and this particular characteristic is what payday loans are known for. It isn’t unusual for an applicant to receive an approval within minutes of applying. They typically have their cash in less than 24 hours.
• Easy qualifications: The qualifications that a borrower must meet aren’t nearly as strenuous as those of long term loans. Advance guidelines typically require that the applicant have a steady income and sometimes an established banking account to be approved.
• No Credit Checks: One huge draw of the payday loan is that there typically isn’t a credit check. Long term lenders need to consider how a person has paid their bills in the past. They use this information to gauge how well the applicants are likely to repay their bills in the future. With a short term loan, this isn’t necessary. There is no lengthy payment plan. Most often, a payday loan is repaid in full with one payment.
• Convenient: The convenience of payday loans cannot be denied. There are several online approaches for applying. Regardless of the method chosen, four of five applicants are approved and typically within 15 minutes of submitting their information. These folks often have their cash within minutes, but rarely does it take more than a 24-hour window for their money to be received.
Payday Loan Disadvantages
While payday loans undoubtedly have distinct advantages, particularly to those who need cash quickly and who may not qualify for larger, long term loans, they also have some distinct disadvantages.
• High interest: The interest rates for payday loans are not regulated in the same ways that long term loans are. As a result, lenders can often charge exorbitant prices for their convenient services. An APR of 300% is not unusual.
• Small: Cash advances are small by their very natures. Most of the people who turn to them are not able to repay a large sum in the brief interlude between the loan initiation and repayment dates.
• Short Term: A borrower can look at the short term aspect as either a pro or a con. Since a cash advance must be repaid quickly, the borrower only has a limited amount of time to come up with a lump sum of cash. Many can’t and end up with serious late penalties. On the other hand, those who are able to pay these loans off quickly don’t have to worry about years of monthly payments.
• Heavy penalties: Often, repaying a payday loan on time is difficult. Those who are late, however, are in for a world of trouble. Not only will there be late fees to contend with, but typically, interest rates are hiked up, as well.
• Lower credit score: Although a person doesn’t need good credit to qualify for a payday loan, being late in repaying one can severely damage credit ratings.
Payday loans have both positive and negative points to consider. While they are convenient, simple loans, cash advances can also be very difficult to pay off in a timely manner. Choose carefully when contemplating these short term loans.