Are payday loans the right option of borrowing for you (1)
Harry July 11, 2022

In today’s times, everybody is dealing with some other financial issues, having multiple expenses, and being stuck in various debt cycles. Generally, people tend to drown in a financial quagmire. 

However, many financial institutions nowadays are available with financial aid to cater to their financial needs. 

Payday loans are one of the in-demand loans because of their straightforward availability. These loans are also known as short-term loans. Although these loans are easily available, they have gathered much criticism. As per the critics, these loans trap people who are in dire financial need and engage them in vicious debt cycles. 

The right payday option for you

Many types of loans are available in the market, such as personal loans (unsecured and secured), payday loans, title loans and many more. Many financial institutions offer several loans to fulfil the financial requirement of individuals. 

You can choose the loan deal that you want. They also offer alternatives to bridging loans if somebody requires them. This blog will take you through both advantages and disadvantages of borrowing payday loans. 

Source: Nextbillion

All about payday loans

Before applying for any payday loan, it is very important to understand its repercussions. Before getting into debt, be aware of all the terms and conditions and also gather all the essential information. 

In Payday loans, the principal amount and repayment time are lesser than the other available loans. The amount of a payday loan ranges from £100-£1500. 

The time period to repay the loan also ranges from 1-2 weeks. With these features, payday loans are also known by many other names:

  •  Payday Advance
  •  Paycheck Advance 
  • Bad Credit Loan
  • Cash Advance
  • Short Term loan
  • Fast Cash Loan

Payday Loans- Advantages

Despite all the disadvantages, payday loans are still preferred by people because of the following reasons:

Easy availability

Uncomplicated availability is one of the exceptional reasons for its excessive demand. Payday loans can be readily available anywhere, anytime, and any place. There are very few requirements while applying for a loan. 

Unlike conventional loan procedures, it involves a flexible application process and less paperwork. 

There are many loans that involve huge paperwork and documentation. If you opt for payday loans, you do not need to get into the issue of long processes. 

No Credit check required

Credit rating plays a significant part in receiving a loan. But, borrowing a payday loan requires no credit check. Generally, payday loans don’t pull out any credit, so there is no need for your credit check. 

Also, banking history is not required as no hefty amounts are involved. Payday loans are for everybody, and people with low incomes and poor credit scores are also eligible to apply for a payday loan. 

There may be instances when people may face a bad credit history. It can be due to any reason, and this should not form the basis of judgment. These payday loans are usually provided without a check. 

Unsecured in nature

Payday loans require no collateral or security for borrowing, and no asset or property is required to avail of a payday loan. This also proves to be beneficial for a borrower if you cannot pay your loan, and the lender does not stand a chance to seize any of your property in return. 

No asset, but lenders do have some access to your bank account. So, in case of a non-payment, you may expect a lender to bother you and may report it. 

This gives you the benefit as you do not yield any of your acquisitions. But you should not be lenient in your repayments. Pay off your loan on time and ensure specialities are going in the honourable direction.

If you adhere to all the rules and protocols, you will be in the good books of the lender. Also, you may be offered a good amount in the future. Also, if you repay your loan on time, it will help improve your credit score. 

Fewer requirements

Traditional loans, unlike payday loans, require lengthy paperwork, registration of numerous documents, various proofs of different people and many more. 

On the other hand, payday loans have minimal requirements and are usually just offered on the identity card. 

The registration for payday loans requires minutes to complete the process. The only condition is to be a working professional and above 18 years of age. 

Payday Loans- Disadvantages

Expensive

They come with a hefty price tag irrespective of their smaller amounts and shorter repayment durations. Payday loans have a higher interest rate in comparison to traditional interest rates. 

In some states, interest rates on payday loans may rise up to 400% compared to credit card interest rates ranging from 13-31%. 

It might lead to a debt cycle

These loans may have shorter repayment terms of 1-2 weeks, but extending the repayment time may attract additional fees to it. You may conclude up spending the exceeded amount. Hence, it is advisable not to delay or drag your payment timeline for longer. You should weigh all the consequences before applying for a payday loan. 

Trap for low-income households

As mentioned earlier, low-income households are an easy target for payday loan lenders as they are always in financial need. Since these are short-term loan making, they are best suitable for little-income households. 

According to research, the majority of the borrowers include African Americans because of their financial status. This indicates more black communities are involved in short-term borrowing as compared to the white community. 

Infamous payday loans

The essential characteristic behind these loans is to trap people in a debt cycle as they are considered unaffordable by many people. 

These loans attract a lot of criticism for being misleading, unaffordable and preferential. Financial experts prefer these loans as they have high-interest rates. Also, before offering, lenders do not question the loan payback amount.  

Conclusion

Considering both pros and cons of these payday loans, it is advisable to weigh both sides and then apply for a loan. 

Before you opt for a loan, it is essential to analyze your payment capacity. In today’s times, every individual requires money for some other reason, and financial problems trouble almost everybody. So analyze your situation and decide wisely.