Payday loans can be an ideal solution for people to access capital fast, and they can be a good option for a certain class of lenders. While payday loans sometimes get a bad rap, there are situations when borrowers have no choice but to consider them.
So, what exactly is a payday loan? Well, it actually goes by several names, some of which you may have heard of, such as ‘cash advance’, ‘fast cash loan’, ‘bad credit loan’, ‘short term loan’ or ‘payday advance’. Essentially, it is a method of borrowing a small amount of money over a short period of time. Because this isn’t a secure loan, none of your assets will be tied to the agreement; instead, a payday loan is meant to be a solution to obtaining some quick cash in emergency situations. This is why it is often such a popular choice for people experiencing financial difficulty who need a quick money boost to stay afloat.
But payday loans aren’t the best choice for everyone, and before you contract one, you have to know what to expect. You also have to do everything in your power to not end up with a raw deal, and face the consequences. With that in mind, here are some of the major pros and cons of payday loans.
Pro: They’re One of the Most Accessible Options
There are few financing methods that will allow you to get access to funds as quickly and easily as payday loans. All you have to do is search for payday loans online via sites like LoanPig and fill out an application, which will usually only take 30 minutes to complete.
You will need to check that you are eligible, which you will be as long as you are:
- Over 18
- A UK resident
- Have an active bank account
- In permanent employment or receiving a disability/living allowance or pension
No credit check, no having to deal with pesky loan officers, and no having to wait days or weeks to get approved. You don’t even have to worry about having any collateral to secure the loan. Some of these services will allow you to get money straight into your account in as little as a day following your approval. That’s hard to beat.
Con: They Can be on the Expensive Side
While these will only allow you to access limited funds, they can get costly, especially when you start missing payments. This is why you have to know exactly how much you can expect to pay in interest before you contract the loan and get the best deal possible. Also, don’t borrow more than you need just because you can. If you do borrow large quantities of money for long periods of time, then the arrangement fee eventually becomes insignificant as a percentage of the loan and the APR (Annual Percentage Rate) falls.
Pro: Some Have Long Term Repayment Plans
Payday loans don’t require that you pay them in full on your next payday. They’re more like flexible short-term loans guaranteed by your income. Depending on the service, you can stretch out your payment from anywhere to 1 to 12 months. However, the longer the repayment period, the more you’ll have to pay, so make sure that you never take out a payday loan if you have long-term financial troubles.
Con: It Can be Difficult to Get Out of the Debt Cycle
If you can’t make payments on time, there will be penalties, and these can start adding up. Do that enough times, and you might end up paying more in fees and interest than the actual loan.
If you are unable to pay back the money on time, this can lead to penalty charges, and if you miss the payment deadline on the first go, your loan is ‘flipped’ or rolled into a new one with a new fee added. The lenders can then calculate a new interest fee and, before you know it, you’ll owe even more in interest.
So, make sure that you borrow responsibly, and be well aware of the costs and consequences when being late.
Pro: They’re Often the Only Source Available
People can say whatever they want about payday loans. But, in some cases, these might be the very last option someone has. If you have an emergency expense that needs to be taken care of, and you have bad credit or exhausted all of your options, payday loans could be the only choice. Many people can’t afford to wait until their next payday, so payday loans become their only option.
Payday loans may have their detractors, but they are still a viable financing solution, and one you should consider if your credit situation is precarious. Whatever you do, always make sure that you work with a reputable lender, know the terms and conditions, and use them responsibly.