What are the Pros and Cons of Payday Loans?
Payday loans have been both demonized and idealized in the news. They’ve been blamed for keeping people in poverty, and they’re credited as lenders of last resort for those who have no other options. The reality is somewhere between these extremes. We’re here to provide an unbiased analysis of the payday loan. What are the pros and cons of payday loans? And what value does this financial product bring to the marketplace?
One of the best things about payday loans is that they do not depend on your credit score. Instead, they will depend principally on your income. This is why payday loans with bad credit are not only a real financial product but one of the few available to those in these situations. Plenty of loan companies offer payday loans with bad credit, and you can shop for these financial services online with referral services like LoanPigUSA to keep fees to a minimum.
Another benefit of payday loans is that you can usually get access to money very quickly. A bank loan or new credit card application may take several days to be approved. They generally set up the loan so that the money is in your bank account the next day, while payment will be collected the day you’re paid. You don’t have to worry about arranging payment, though it is your responsibility to ensure there is enough money in your bank account to pay the loan back. When you pay off the loan, you’re done. This is far easier than trying to manage credit card or bank loan payments over several months.
Payday loans also don’t limit how you can use the money. The funds can be used to pay for car repairs, a plumber, rent or doctor’s office. The process is also much easier than having to go before a loan officer.
Payday loans have relatively high interest rates. The interest rate is usually higher than the interest rate you’d pay if you had used credit cards, and it becomes worse when your loan rolls over several times.
Another thing about payday loans is that amounts are limited by your disposable income. For example, you can’t borrow more than a set percent of your weekly or monthly income. Furthermore, the loan amount may be limited by state or local law. This makes payday loans a good choice for paying for unexpected but modest car or home repairs, but it cannot cover major expenses like a new roof or all of your living expenses in an emergency.
Payday loans have moderately high interest and fees. However, the costs skyrocket if you can’t pay the loan back at the due date. If you have to roll over the loan more than once, the associated penalties and compound interest are immense. In this case, it would actually be better to pay your bills with a credit card at 20 or 30 percent interest. This is why payday loans should only be used in an emergency, not for luxuries.
Payday loans can be a godsend depending on your financial situation, but they have to be used responsibly. Make sure that you understand the terms of your contract, and commit to paying on time if you don’t want to end up in a vicious circle.