What Can Be Expected When Taking out a Payday Loan?
People often find themselves in situations where they urgently need a small amount of money to buy something necessary or cover bills. Taking a payday loan might seem like a good idea when you lack a small amount until the next paycheck. Payday loans are very fast to obtain and do not require much effort to apply, but they have high interest rates and some other downfalls. Therefore, before taking a payday loan, remember to consider the available options and do some research.
About Payday Loans
These are short-term loans with high interest rates. They are quick to apply and receive, with money being delivered to the borrower’s account within a day. While long-term loans work only for large sums of money, payday loans usually do not exceed one thousand dollars. Just like the name of this loan suggests, people often take it to cover the debt right away with their next paycheck. It is easy to receive a payday loan as the lenders do not require any collateral or a particular credit score. You can provide only an ID and proof of income. So, having a stable job with a salary is the only requirement for applying for these loans.
Benefits and Disadvantages of Payday Loans
Payday loans became popular because they are accessible and offer some benefits. Unfortunately, the disadvantages are quite drastic. People either take this loan without knowing the pitfalls or without careful consideration. After all, payday loans still offer quick money when people need it most. Here are some things you should know about payday loans.
Pros:
- Easy access. You can complete an application for a payday loan online and get the sum quickly within a day;
- Low requirements. You do not need a perfect credit history for receiving payday loans. The lenders do not require a lot of documentation either; borrowers must provide only ID and proof of income;
- Speed. If you need money urgently, payday loans can be extremely helpful as many lenders work 24/7 and approve applications quickly.
Cons:
- Interest rates. The average interest for payday loans is 400%, which is incredibly high, especially compared to other types of loans. Thus, consider your options carefully before committing to paying such high interest;
- Debt cycle. Taking additional loans to cover the existing one and paying even bigger interest can lead to even more debt. People take payday loans when they have no other choice and debt starts accumulating;
- Negative impact on the credit history. If you want to build your credit score, payday loans usually do not affect it. However, failing to pay off your loans and accumulating debt will be damaging to your credit history.
Payday loans are usually considered predatory because of their drawbacks, and people usually use them as a last resort. If you desperately need quick money, make sure to consider all the pitfalls before you make an informed decision. Try to pay out your loan quickly not to accumulate debt.