There are many reasons why people might need to take out a payday loan. They can be helpful in an emergency, but they also have some drawbacks that you should know about before taking the plunge. Some companies have many requirements; this includes getting a credit check.
The Pros:
Quick Cash
If you have a job, then it’s likely that the minimum requirement to get approved for a payday loan is also around your monthly salary. You can usually receive cash within 24 hours or less of applying and being approved – so if you need emergency cash fast, this is an option worth considering. Many people even report getting the money in their account within an hour or two of applying and being accepted.
The rates are typically much lower than many other loans, so if you need only a small amount, payday loan companies can likely help you out. You may be able to get the cash without having any collateral as well – depending on how much you make and how much the loan company thinks you can afford to repay.
Fast Approval
Payday loans are known for their quick and easy approval process. If you have a job, then it’s likely that the minimum requirement to get approved for a payday loan is also around your monthly salary. You can usually receive cash within 24 hours or less of applying and being approved. So if you need emergency cash fast, this is an option worth considering.
The Cons:
High-Interest Rates
The rates are typically much higher than other loans. Suppose you need only a small amount of money or can wait to take out the loan until your next paycheck comes. Then it’s likely that payday loan companies aren’t what you’re looking for. The interest rate on a payday loan is often as high as 30% – which might not seem like a lot at first but can add up very quickly. If you don’t pay it back in time, then the company will also charge additional fees. This could make it even more expensive to take out payday loans when compared with other traditional loan options.
Short Repayment Terms
A payday loan is only supposed to be a short-term option. However, it can end up being very expensive if you don’t pay back the money on time – and there’s no way to extend your repayment term. The average length of a payday loan is about two weeks, but some people end up paying for months before they’ve repaid the loan in full. If you can’t pay it back on time, then you’ll have to face even more fees and interest rates that are even higher than the original amount of money you borrowed.
Strict Collection Practices
If you don’t pay back your payday loan on time, then the company will likely try to collect it from you any way they can. They might even contact other people in your life – like family members or friends who know where you live and work. This could make things very uncomfortable for many people, so keep this in mind if you’re thinking about taking out a payday loan.
Payday loans are a quick and easy way to get money if you need it. The problem is that they can be expensive, predatory, and damaging in the long run. If these sound like your type of loan, we recommend only getting payday loans once or twice for emergencies before looking into other debt consolidation and home equity loans with lower interest rates. We’ve got some great resources below on avoiding common pitfalls when using payday loans, so read up.