A payday loan is ideal when you need instant cash to tide you over until month end, deal with an emergency or unexpected expense or make a purchase you cannot afford outright.
The reason why people take out payday loans
A payday loan is also a short-term loan where a lender extends high-interest credit based on a borrower’s income and credit profile. One of the benefits of payday loans is that you can apply for it even if you have bad credit.
When you don’t have savings that you can turn to when you encounter an emergency, a payday loan is always an option. Payday loans come in quickly and are loans that can be used for anything, meaning you can do anything with the funds as long as you will pay it back on your following payday.
One important consideration is whether or not you have alternative sources of quick cash which may be more affordable such as loaning from your employer as an advance on your paycheck or borrowing from a family member or friend.
How payday loans work
Although payday loans are always an option when you run out of cash, they charge borrowers high levels of interest. They act as predatory loans as they have a reputation for extremely high interest and hidden provisions that charge borrowers added fees.
Payday loans are available at online lenders and some traditional banks do offer payday loans. You can also apply for a payday loan to small credit merchants.
Wherever you choose to take out your payday loan from, you must ensure that you keep up with your repayments to ensure that you keep a healthy credit rating.
In addition to this, rolling over a payday loan or not making the repayment when it’s due will allow the lender to add non-payment penalties and other fees which will make the loan extremely expensive.
Things you should know about payday loans
With payday loans, collateral is not required
We have witnessed banks and other formal lending institutions going after the property of loan defaulters. But when it comes to payday loans, you do not have to fear to lose any of your assets. Instead, you are required to submit documentation proving your ability to repay the loan. Payday loans are usually given to people who are employed.
Payday loans are convenient
When you need a payday loan, you do not have to walk long distances. The world has evolved, and the digital world was introduced. You can apply for the loan online and once approved it will be transferred to your bank account. When the repayment time comes, the money will also be automatically deducted from your bank account.
You can get the money in just a few hours
With some lenders there is no credit check to determine your credit rating or other processes that can potentially delay your application approval hence they approve online loan applications fast. Even those with bad credit can qualify for a payday loan and apply for one from one of the many online lenders.
Look out for hidden costs
Most payday loans are accompanied by hidden costs. Never skim through your loan agreement. Be sure to read all terms and conditions you’ll likely unearth hidden charges such as initiation and service fees.
Benefits of payday loans
Payday loans allow you to pay for unexpected expenses or late bills before you get your salary. Applying for a payday loan saves you from penalties imposed on late payments.
- Payday loans are fast – with payday loans you do not have to fill any lengthy forms, as is the case with conventional loans, the application process is simple and quick. With some lenders, you can receive funds within an hour (depending on the bank you use) if you provide the required details fast.
- Payday loans require few documents – for you to get a payday loan you should have a stable source of income and be over 18 years. You do not need to provide any security for the loan. Furthermore, online lenders might check your credit score, but they base their decision on your current financial situation.
- You can qualify for a higher amount – although many lenders limit the loan amount that new borrowers can access, you can only access an amount that is within your salary range and the lender’s range regardless of being a first time or a frequent borrower. However, when you pay for your first payday loan on time, your lender can increase the amount that can access your subsequent applications.
- Protecting your credit rating – when you apply for a payday loan for the first time, the short repayment period for a payday loan may seem like a shortcoming but they should have short terms compared to having an installment loan you will pay for many years. A lot of things can happen within these years which can lead you to default on your repayments. A short-term pushing to repay your loan, regardless of any situation you are facing.
- You can apply for a payday loan online – with payday loans, you can complete you application entirely online and upload your documents automatically without having to worry about scanning, printing or any other paperwork. Once you’ve been approved for a loan you will then have to sign a loan contract. With online applications you can sign the contract digitally online.
Payday loans are always there for you
Payday loans are a better way of obtaining quick cash rather than asking it from someone else. However, never get too comfortable with payday loans, they are loans and they can negatively affect your credit score if they are not paid on time.
Alternatives to payday loans
Alternatives include making use of credit cards and overdraft facilities as well as personal loans.
These are good options but may have stricter lending criteria and may therefore exclude those who are not employed full time or who lack a credit history.