Many people advocate for payday loans because of how easy they are to obtain. Even with bad credit, you are guaranteed to qualify for most payday loans. On the other hand, payday loans can be quite expensive and they could lead you into a debt cycle gradually.
Payday loans have their benefits but Knowing more about payday loans will help you make the right choice when you are in need of some cash. Typically, payday loans are small loans with a high-interest rate and you have to repay within two weeks or a month depending on the lender.
The pros of payday loans
They are very easy to access
The biggest advantage of payday loans is that they are very easy to access. You will have access to the cash within 24 hours and also get to make an immediate lending decision. Most payday loan lending is done online and the loans are available 24/7.
Payday loans have fewer requirements
Fir traditional loans, lenders need your proof of income, social security number, id photo, a credit check and other documentation to prove you can repay the loan before they lend it to you. That is not the case for payday loans. The general requirements for a payday loan are;
- Having an active bank account
- Be at least 18
- Have a source of income
- Social security number or government-issued ID
You qualify even when you have poor credit
Some lenders will not require you to have good credit for your loan to be approved. Unlike traditional bank loans, there is no hard credit enquiry which can have a small impact on your credit scores.
Payday loans are unsecured loans
Unlike traditional loans, auto loans and other hard loans, you will not need any collateral to qualify for a payday loan. They are basically unsecured loans. The only catch is that they have access to your bank account as one of the conditions of the loan.
The cons of payday loans
They are very expensive
On average, payday loans have a higher interest rates when compared to all other short term and long-term loans.
Depending on your country or state, payday loans have an average interest rate of about 40% while personal loans and all other loans charge an interest rate of about 3-30%.
Payday loans can be predatory
Some lenders have misleading, unfair and unaffordable terms that some with their payday loans. The loans can potentially trap you into a debt cycle. Some of the warning’s signs are that the lender does not help you build your credit and they do not check whether you will make the payments on time.
Payday loans target low income people who live from one paycheck o the next. It is easier for them to get into a debt cycle with payday loans because of their easy accessibility. If you are not careful, payday loans could mess with your finances. Before you take out a payday loan, make sure you read all the terms and conditions so you do not fall victim to the hidden costs and other traps.