We live in a time when it is common for people to easily get involved in a financial crunch. Not being able to manage monthly budgets, deteriorating credit history, and borrowing more money to cater for routine expenses are some of the most common issues that are faced by millions of people from across the globe. While critics say that short term loans are meant for the poor, still this option is taken up by thousands of people globally.
So what is the reality behind payday loans? Here, in this feature, we will guide you through the pros and cons of payday loans. However, before we dig deep down into the crux of this discussion, it is essential to introduce payday loans.
What is a Payday Loan?
In simple words, a payday loan is a small dollar loan that ranges between $100 to $1500. It is to be returned within two weeks of a month. This is how most companies operate the process of payday loans. This kind of loan has several other names such as cash advance, payday advance, paycheck advance, short term loan, fast cash, bad credit loan, and deferred deposit transaction. These loans are provided to people with poor credit and zero credit. People who need loans on an urgent basis to cater for a sudden financial calamity, apply for payday loans.
Here are a few pros and cons of payday loans you must know:
Pros of Payday Loans
Here are a few reasons people switch to payday loans by brushing the issues under the carpet:
1. Easy To Access
One of the strongest reasons people turn towards payday loans are, it is easy to access. You can get a cash advance within 24 hours. In some cases, people can easily get payday loans within 12 hours as well if they have to pay for a medical emergency. Several companies offer online services to clients who need urgent money. For instance, if you want quick money, you can visit https://bonsaifinance.com/loans/same-day-payday-loans/ , fill a form, and get money within a few hours. Unlike traditional loans, payday loans make life much easier in terms of getting urgent money.
2. Your Credit History Isn't Checked
Even if you have the poorest credit history in the world, nobody will ask for it. Contrary to this, if you’re applying for a traditional loan, you will need to have a good credit rating to get the loan approved. Since payday loans don’t analyze the credit history of clients, getting a payday loan approved is easier than you think. It is important to note that payday loans won't help you in improving credit history. So applying for a payday loan won't be a stress at all.
3. Payday Loans Have Fewer Requirements
If you venture out to get a traditional loan, the bank or whatever financial institution you visit will require you to produce a social security number, credit check, proof of income, and several other details. However, fast cash will entail a few details before you can get the money. If you want to apply for a payday loan, you should be 18 years of age, have a verified bank account, provide a social security number, etc. As soon as you provide these details, the bank will easily provide you with money.
Cons of Payday Loans
Now that you’ve understood the pros of payday loans, it is imperative to know the other side of the story too:
1. Payday Loans are Hell Expensive
The interest rate that is charged on every payday loan varies according to the state. The average interest rate charged on a payday loan is around 400%. Where conventional loans charge an interest rate between 4% to 36%, payday loans can make you go bankrupt easily. In some states, payday loans are usually charged with an interest rate that is a whopping 700% of the total amount. This means the amount that you borrow is negligible as compared to the money that you have to pay back. This is the main reason; experts suggest people keep away from this option.
2. You Can get Trapped in a Long-Lasting Debt Cycle
If you already have a poor credit history, applying for a payday loan will be nothing but equivalent to adding fuel to the fire. Every time you seek more time to pay back the loan, the lender will add additional charges. This will increase the total amount of money that has to be paid back. Shockingly, 1 in every four payday loans needs extensive time to be paid back. People who get trapped in debt cycles have to take the stress and often engage in different health conditions.