A Payday loan is a comparatively small amount of money which is, generally, lent at a high rate of interest and an agreement is signed along with that the borrowed amount will be repaid back once the borrower receives their next salary. Payday loans are fast, simple and don’t have stringent approval terms.
It is very easy to get a payday loan. In fact, owing to the immense popularity of the payday loans, there are several online lenders that offer payday loans. You can check and compare each of them at MoneyLend.net and select the best offer for you. However, payday loan has garnered a mixed reputation for itself. So, is it a good idea to get a payday loan?
To get an answer to this question you require weighing in all the pros and cons of taking a payday loan and make an informed decision regarding the same.
How Does Payday Loan work?
A payday loan is like a cash advance taken from your boss and returning the same when your next salary arrives. However, unlike borrowing the same from your boss, a payday loan comes with interest and additional processing fees.
Also, sometimes, a lender may ask for a pre-signed cheque in the form of collateral. So, if you fail to repay the amount on time, the lender is authorized, according to the terms of the agreement, to use the pre-authorized cheque to withdraw the required amount.
What Are The Advantages Of Payday Loans?
Cash is sent instantly to your bank account post getting the approval for the payday loan. Hence, you can withdraw it immediately as soon as it arrives in your bank account. So, you can use payday loans in case you find yourself stuck up in an emergency financial situation.
The Application Can Be Made Online
This is the major benefit of payday loans. You don’t need to go anywhere or speak to anyone for getting a payday loan. Open the portal, apply for a payday loan and get an instant decision regarding the same. Money comes into your account, as explained in the point above, almost instantly and can be used for your emergency financial needs.
Increase In Loan Amount
When you will construct a good track record with the lender you will find that the lender will agree happily to provide you a higher loan amount. Hence, you will always be financially safe whenever you are in need of emergency funds.
Poor Credit Score Is Not A Factor
One of the biggest reason payday loans are increasing in terms of popularity is that most lenders don’t check the credit score of the borrowers. Hence, borrowers, who get rejected from traditional loans, due to poor credit history, often resort to payday loans to fulfill their emergency financial needs.
Payday Loans Are Highly Convenient
You don’t need much to qualify for a payday loan. All you need is a good source of income, an ID proof, and a bank account. So, when you will apply for a payday loan there are more chances that within an hour you will get the required amount in your bank account to take care of your sudden financial requirements.
What Are The Disadvantages Of Payday Loans?
Lenders, generally, charge a high rate of interest on payday loans as compared to traditional loans taken from banks. Hence, whenever you take a payday loan, you may get cash instantly in your bank account, but you need to pay high-interest charges to the lender which might not be economically sound for you.
Additional Fees And Charges
If you are unable to pay back the payday loan on the time which you have agreed with the lender, you will be hit by additional fees and late payment charges. If still, your financial situation crumbles and you are unable to pay the loan amount along with the levied charges; the additional amount will continue to grow and one fine day you will witness that the amount which you need to pay to the lender has increased exorbitantly and has become very high as compared to the original loan amount taken. Hence, you must opt for a payday loan only if you are confident enough that you will be able to pay back the agreed amount on the agreed time.
Affects Your Credit Score
When giving out a payday loan, the majority of the lenders don’t check your credit score. However, if you happen to fail in paying back the payday loan on time, the same is reported by the lenders to the credit rating agency and it, ultimately, impacts your overall credit score .
Also, if you take payday loans regularly, then, when applying for a conventional loan, the company may reject your application for the same. This is because if the number of payday loans reflected on your credit score statement is more then it indicates that you are not able to manage your finances well and the lender might put him into risk on approving your loan.
Not A Long-Term Financial Solution
If you are considering taking a payday loan, it means that your current financial situation is not good and even your credit score is poor. The payday loan might help you to overcome short-term financial problems; however, they cannot fix the bad financial situation of yours which compelled you to take a loan in the first place.
Payday Loans – Conclusion
Payday loans might be beneficial in grave financial situations when you are in an emergency to arrange funds. However, before taking a payday loan one must consider all other alternative finance options. A payday loan must be considered as a last resort to get funds for your short-term financial needs. So, if you have payday loan as the only option available to take care of your financial requirement and you are confident that you will be able to pay back the loan on the agreed time, go for it.
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