Many people find themselves in difficult financial times and need a quick bailout with small loans to tide them over. Studies have shown that family is the first source people go to when they need some quick cash. But what happens if that isn’t an option? Some people don’t like to borrow from family members because of the potential harm to the relationship. Other people just don’t have family members that can afford to spare the cash.
Instant payday loans are an option for people who need to get some money in short order, but do not have any other resource to borrow from. However, most people aren’t aware of all the pros and cons of getting a payday loan, and if you are one of those considering this option, you should have all the information possible before making your choice. This article lists the pros and cons of getting a payday loan so you can make an informed decision on whether utilizing such a financial service is right for you.
The Pros of Instant Payday Loans:
- There are benefits when you get a payday loan. The application process is relatively quick and easy. Very few people will spend more than thirty minutes applying for a cash payday loan, which only takes a few items to complete such as a government-issued ID, your last two pay stubs and an open and active checking account or direct deposit card in order to process the loan. A majority of applications taken over the phone or online can be done in as little as five minutes and often the money can be direct-deposited into your bank account so you have virtually instant access to it once the loan has been approved.
- There are few barriers to the approval of your short-term loan. Where large banks will run a credit check and make you fill out all kinds of paperwork, a payday loan will not require these and can be virtually hassle-free to obtain. Rarely is a credit check required because the lender is basing your ability to repay the loan off your most recent pay stub and has calculated what it will take to pay it off. A good and reputable lender will never loan you more than you’re capable of paying back. This is a good business practice and helps the customer in a financial bind.
- A vast majority of borrowers will have access to their applied-for loan within a day. As stated above, it can be direct deposited into your bank in 24 hours, and sometimes even less, so you’ll have it when you need it, and won’t have to scramble to make arrangements while your loan application is being processed.
Cons of Cash Payday Loans:
- Payday loans have a higher interest rate than standard bank loans. This is because they are short term and not secured loans. When compared to bank loans that you pay over the course of several years, the interest rates are indeed much higher. Interest rates vary from state to state in the payday loan industry, and just as banks compete with each other to get loans to customers, so do the payday loan financial institutions. Just make sure you have a way to pay back your loan before you take one out.
- There are fees if you miss a payment or fail to pay back your loan on time. This is nothing out of the ordinary; your local utility or credit card holder does the same thing. But it’s listed as a negative because it can be easy to neglect repayment of the loan, and wind up having to pay back more than necessary.
- Make sure you read your loan contract carefully and you are comfortable with the terms. Payday lending institutions often make loans to so-called “high risk” individuals; those with poor credit or no credit at all. As a result of this, the lender will have clauses and stipulations that favor the financial institution in case anything goes wrong. Again, don’t take out a loan unless you know you can pay it back. Lenders don’t want their customers to default or miss payments, but it does happen, and they are therefore cautious.
- Collection practices by some lenders can wander into a gray area. Read the Fair Debt Collection Practices Act and find out what your rights are. Make sure you are not hounded unfairly by a collection agency working on behalf of a lender. Many collection agencies make mistakes and exceed what they can legally tell a customer who is in default of their loan. Once again, you can avoid all this by simply making sure you pay back the loan in a timely manner.