Payday loans have been alternative loan options for many. They are preferred for their fast and simple approval process along with the freedom of terms. Their popularity has created an entire sub-industry in the financial sector. Also, payday loan may be considered as a good option when you need a loan during unemployment. However, they have downsides too, which is why there is a mixed repute associated with them.
Why Payday Loans are so Popular?
Payday loans are often attractive to those who don’t have much knowledge of financial concepts and have little security. The offers often come across as flawless and so simplified that a person is much need money will take them.
Considering the Entirely of Payday Loans
Payday loans are not a bad choice. But it is highly recommended to fully understand them. One should be aware of all the benefits and drawbacks before choosing them. Additionally, it is important to determine that a payday loan is the best choice for the borrower’s specific situation.
Explaining the Benefits and Drawbacks of the Payday Loans
Payday loans seem quite attractive due to the following reasons:
- The application process of payday loans is incredibly easy. Most lenders even accept online applications. The process of approval is also quite quick. Some payday loans will be offered within the hour
- Even if the loan approval is not as quick as within the hour, it is still available by the next business day. The loan money is transferred to the borrower’s account after the approval and they can readily access the money
- For traditional loans, one has to provide their credit history. In case of poor credit score, it can become difficult to get an approval. On the other hand, payday loans don’t require a credit check along with no requirement of offering a collateral from the borrower’s side
- Payday loans are considered to be short-term loans. This means that the payments can be made back within 1 to 2 weeks as a lump sum. This often reduces the burden of frequent long-term payments on the borrower
- With a payday loan, the borrower does not have to worry about writing a check or signing a lengthy form in order to pay back the money. The lender will simply cut the payment from borrower’s pay account, hence, the name of the loans itself
In order to be in the position to make the best loan decision, it is important to learn about the drawbacks too. Here is why a payday loan could be disadvantageous:
- A payday loan does not impact the credit score at all. So if you are a borrower looking to improve the score, this loan will not be helpful; even if you pay back on time
- Payday loans are feasible only when one has a full-time employment. The borrower has to show proof of regular income source
- It is not convenient for those who are looking for a large sum of money to pay back over a longer period of time
Weigh the benefits against the drawbacks to make the best decision.