At times like these, a person may feel helpless and overwhelmed. To make things worse, if the person has bad credit, he may feel that the only option is to request a payday loan (a short-term loan that a customer pays back with his next paycheck). It is important to consider the advantages and disadvantages of payday loans before deciding whether payday loans are the solution to a person's financial problems.
Advantages
One payday loan advantage is that generally, the borrower can have the cash he needs within 24 hours, and some companies deposit the funds within hours. Another advantage is that the person doesn't have to worry about a credit check or needing a high credit score. Lenders approve payday loans based on the customer's weekly or biweekly income. For this reason, they typically require a checking account setup with direct deposit.
Further advantages include the privacy and confidentiality factors. Consumers may apply for a payday loan without family or friends knowing about their financial situation. Most lending companies allow consumers to apply online. Direct payday companies handle the entire process electronically. The applicant never has to speak with a clerk or give any explanations.
Additionally, this type of loan doesn't have any restrictions regarding the use of the borrowed money. A person can use the funds to purchase gifts or to care for an emergency. Furthermore, Peace of mind is another benefit. For example, a person can gain peace of mind when he's able to pay rent on time and avoid eviction. Another instance is a person who can pay for car repairs over the weekend and get to work on Monday due to obtaining a payday loan.
Disadvantages
Just as there are benefits in requesting a payday loan, there are also disadvantages. One major disadvantage is that the full loan amount, including the loan fee and or interest rate, will come out of the customer's next paycheck. Many customers overlook this fact when they take out a payday loan. As a result, they may find themselves in a cycle where they either rollover the loan (extend the due date, which includes additional fees), or they take out another loan to make it through the week. This could be financially harmful and stressful for the family. In this case, a payday loan would certainly not be the solution to a person's financial problems.
Moreover, the average payday loan fee is 15 percent ($15 for every $100 borrowed). It varies according to lender. Consider the fact that the lender charges a fee each time he extends the loan. If not careful, it can become unmanageable.
Since the payday lending industry has grown drastically, there are also unscrupulous lenders operating illegally. Consumers need to make sure that the company they choose is a reputable one. Lenders that encourage customers to take out multiple loans knowing that they can't pay for them are exploiting the consumer.
Reputable lenders inform their customers regarding the use of payday loans. They inform customers that payday loans are alternative, short-term solutions to financial problems.
This type of loan is for one-time emergencies. Customers with ongoing money problems are encouraged to seek financial advice.
In conclusion, although payday loans have received negative press due to high interest rates and fees, they also carry benefits when consumers use them responsibly and wisely. A person who plans to take out a payday loan as a last resort needs to make sure that he will be able to pay it back out of his next paycheck without it becoming a financial burden. If this does not seem possible, he will need to consider other options.
Although borrowing money from family or friends can be embarrassing, it may be the best solution. Payday loans involve high fees due to the nature of the loan. However, there are reputable lenders. Consumers need to do their research when considering a payday loan. It's important to consider the advantages and disadvantages before deciding whether payday loans are the solution to people's financial problems.
