Are you struggling to make it to your next payday?
You aren’t alone. 8 out of 10 Americans claim that they live paycheck to paycheck. Of this number, many still find it financially difficult to survive in between those direct deposits.
Payday loans are available to individuals who find themselves in need of cash in between paydays. They are sometimes called “quick cash” loans.
If you are thinking about obtaining a payday loan, it’s essential to learn more about how these work before doing so.
In this post, we’ll look at the pros and cons of payday loans so that you can be informed!
What Are Payday Loans?
Payday loans are bad credit loans designed to give individuals fast cash before an upcoming payday.
They address the pressing issue that many people encounter: not being able to financially make it to the next paycheck, for a variety of reasons.
Payday loans act like cash advances against your future paycheck.
Payday lenders and loan terms themselves vary. However, in general, most payday loans are very short term. Most borrowers must pay back the borrowed amount (plus interest) on the date of their next payday. In general, you’ll also have to pay them back in one payment, which is different from an installment loan, where you repay the loan with multiple payments over time.
For some individuals, this may mean paying back the loan within 14 days (two weeks).
However, it is possible to obtain a payday loan that has a longer term. Term length will depend on the lender, your current income, and the amount of the loan itself.
Payday lenders are often online lenders, meaning that they do not have a brick-and-mortar office. There are scores of payday loan lenders available to potential borrowers, and for this reason, it’s important to research and compare rates.
It’s also possible to obtain a payday loan if you have damaged, bad, or limited credit history. Learn more about no credit check payday loans here.
It’s important to keep in mind that many payday loans have high rates and fees associated with financing. In many cases, interest rates can be 50 or 75% of the principal loan value.
There may also be penalty fees for late repayment or lack of repayment.
This is especially the case for payday loans online available to individuals with poor credit history.
As such, we strongly recommend reading all of the fine print for any payday loan you obtain. Research lenders wisely so that you can feel confident in your borrowing choice.
The Pros and Cons of Payday Loans
Let’s take a closer look at the advantages and disadvantages of obtaining payday loans.
1. Pro: Instant Cash
One significant benefit that payday loans provide borrowers is their immediacy. In some cases, it’s possible to receive instant approval and have the cash in your bank account in less than 24 hours.
This can be vital for individuals who find themselves in a financial dilemma or emergency of any kind. Other personal or installment loans may have more involved application processes, resulting in a delayed transfer of funds.
It’s also possible to apply for a payday loan quickly and easily through a lender’s secure site.
For this reason, payday loans can be an asset to individuals who are needing a small boost prior to their next paycheck.
2. Pro: Liberal Approval Terms
In general, most applicants who apply for a payday advance are likely to be approved. This is a great advantage, particularly for people who have a severe financial need but poor credit history.
In many cases, it is possible to apply for a payday advance without undergoing a credit review or check. If a payday loan lender does review your credit, this is likely to be a “soft” review, meaning that it won’t harm your credit score. Because of this, payday loans are often considered personal loans no credit check, as there is no hard credit check conducted.
Some lenders may require applicants to submit information about their employment, including future pay dates and income levels. Others likely request a pre-approved check as collateral on a loan.
Nonetheless, the approval terms are still extremely liberal.
3. Pro: Request A Variety of Amounts
Some personal loan online lenders have a cap and/or minimum on the amount of money they are willing to finance with a borrower. Others, however, are flexible in the amount that borrowers can request.
At Bonsai Finance, for example, we offer payday loans of up to $5,000.
Payday loans’ relative range can be a boon to borrowers needing flexible loan amounts between paychecks.
4. Con: High Rates
Payday loans offered to individuals with poor credit are considered high-risk loans. Because these loans are bad credit loans with guaranteed approval, they are more likely to come attached with high rates.
Some of these rates can be prohibitive for borrowers, requiring individuals to repay 30-100% of the principal amount in addition to the principal. Other lenders may charge various fees throughout the repayment process.
This can be a disadvantage for individuals who may not have the financial resources to pay off their loan once the next paycheck arrives.
5. Con: Short Repayment Terms
Various payday loan lenders often require borrowers to pay back their loans in full within a short period. This can be as short as a 14-day period.
For many borrowers, this is simply impossible, particularly given the rates attached to principal loan amounts. Some borrowers end up paying more fees simply because they cannot meet the repayment terms.
6. Con: A Payday Advance May Lead to Another
Payday loans do offer fast cash. However, many advances often lead to another if you aren’t careful with financial planning.
A person who requests a $1,000 payday advance, for example, will have to pay this out of her next paycheck of, say, $1,600. If she pays $500 in interest, her new paycheck leaves only $100 of liquid income.
If another difficult financial situation arises, this person may find herself in need of another payday advance, and so forth. This can lead to a difficult situation where you’re worried about a payday lender taking you to court or garnishing your wages.
It’s important to plan wisely when taking out a payday loan to prevent future debt.
Final Thoughts: Payday Loans
Payday advances are available to individuals needing financial aid in between their paychecks. In many cases, these loans are easy to obtain and have liberal approval terms.
They can also provide secure, immediate cash in desperate times. However, these loans also tend to have high rates and short repayment terms. If used unwisely, payday loans may lead to others in the future.
Keep these pros and cons of payday loans in mind as you research payday lenders.
If you are trying to decide if a payday loan is right for you, we can help. Reach out to us today to learn more! Here are some other articles you might find interesting:
The easiest payday loans to get approved for to get your finances on track
Are there payday loans for ssi and other federal benefits recipients?
Can I take out multiple payday loans at once?
Are instant payday loans worth it?