Research indicates that as many as over 10 million American citizens take out payday loans on an annual basis with the majority of them being mainstream workers who are so financially strapped that they cannot qualify for credit cards or might possibly have very low credit limits, mostly as a result of previous money issues.
Over the years, there have been controversies and debates over whether payday loans are a good source of cash advances and it has had supporters and detractors alike, hence, the question of whether or not they’re good is dependent on the borrower and his motives for taking the loan in the first place.
While there are stories of how payday loans have completely destroyed people’s finances and sent them into an abyss of debt, there’s a ton of individuals who have consistently over a long period of time exploited the opportunity payday loans provide without any single complaint. It thus becomes imperative that every individual understands the pros and cons involved before deciding whether they are a good choice or not.
They are hassle free!
Nothing feels better than applying for a cash advance and getting approved within a few hours, but that’s how quick it is to get a payday loan in most cases. They do not require your credit score or an access to credit cards. In areas like the US, as long as you have a monthly salary, driver’s license and a savings account, you are eligible. In fact, all the formalities that you might need in order to be granted a payday loan can sometimes be completed online without you having to visit an office.
Cashing your loan is even easier, check out A1 Credit also, there are a lot of lending shops who’d be even happy to give you cash as long as you provide a physical check as security for your loan. Some lenders even offer ‘no fax’ payday loans and telephone payday loans, all of which are designed simply to make the borrowing process easier.
Another advantage is that payday loans do not come with any requirement or collaterals, so there is no risk of you losing your assets like house, car, etc. at any point in time. As a matter of fact, these loans can even be granted to individuals with a poor credit rating and history. The credit score has absolutely no effect on the payday loans and unlike the banks, payday loan stores can be open for longer than the normal banking hours, giving you access to quick money regardless of what time it is.
Also because payday loans are usually only a percentage of how much you earn, they can indirectly serve as a check on irrational borrowing as you can’t be given more money even if you wanted more.
The biggest issue many have with payday loans is the exorbitant interest rates that come with them. Sadly, many individuals are usually unaware of these interest rates as they are usually more focused on the fees involved. The annual percentage rate, on the average has been found to vary between 300%-500% and this has led to an increase in regulation policies by governments. Yet, when compared to other alternatives like credit cards, payday loans still have the highest interest rates. As a result, when the loan is due, most borrowers are unable to repay the loan, choosing rather to refinance the debt and this pushes them farther into even more debts, destroying their credit score in the process.
By virtue of them being only a percentage of your monthly income, payday loans are usually only small amounts that cannot be used to solve serious financial problems and would in most cases, only be used to pay up on services that would have otherwise been unnecessary or avoidable.
Also, while the convenience and ease might seem to be an advantage, it actually isn’t as this can be exploited by fraudsters since the terms and conditions are usually set by the lenders and are mostly never read at all. Weirdly too, in a bid to save you the stress of writing a postdated check, some lenders might ask for the rights to access your bank account. And considering how desperate you actually need the money, you might actually grant them this.
Well, when the loan becomes due and the funds aren’t in your account but your lender is busy making repeated attempts to withdraw his money, you soon realize that there is an overdraft on your account, especially since most of these lenders can be ruthless when it comes to collecting their payments.
Even if you did drop a postdated check; you aren’t entirely free from trouble. When your payday comes and the check bounces, then trouble just came to town. First, your payday lender will repeatedly try to deposit your check or at least try to withdraw money incrementally from your account and might fail every time he tries. Each failed attempt will most likely add bank charges to your account in addition to the interest charges that have already been accrued on your loan.
The easiest way out of this mess is to inform the lender as soon as you realize that your paycheck might not come in as at when due and then discuss on how to work out another payment plan. While this might not hurt your credit score, it would definitely mean that you’d pay more than you earlier planned.
Payday loans have their good and bad side. But as we have earlier mentioned, it’s usually dependent on you and the reason why you are taking the loan. If thought of as an emergency alternative and if you’re very sure that you’ll pay up as at when due then, payday loans can be an enjoyable and easy access to solve that financial emergency. But you might want to be careful not get into a habit of constantly sourcing for these loans as this is usually where the problem lies.
Also Read, Is Society Ready to Become Cashless