The pros and cons of using a payday loan as a quick cash solution


Most of us experience financial difficulties at some point in our lives. It can be a medical emergency, home expenses and bills. And finding extra cash to fix problems becomes a problem. Lucky are those who have family and friends to turn to in case they need to borrow extra money. However, it doesn’t happen all the time, and the people we usually turn to can’t provide the money either.

If the same scenario happens to you, what possible options do you have? You may be thinking of getting a payday loan, which is fortunately available at all times. But before you take out a payday loan, make sure you know what it means and what the downside of taking one is.

What is a personal loan?

If you are in a difficult situation and you urgently need money, taking out a payday loan can help you solve your financial problem quickly.

In a nutshell, a payday loan is a quick cash loan with a high interest rate because it offers high risk to lenders. Reimbursement is made only once, i.e. when you receive your next paycheque. That’s basically what a payday loan is, but there are still some things you need to know before you finally jump into taking out this type of loan when you need it in the future.

Below we’ve included the pros and cons of a payday loan – factors you need to consider before making your decision.

Advantages of taking out a personal loan

Here are the good points about taking out a payday loan, and some of these reasons are so enticing that they drive many people to take out this type of loan these days.

1. Easy application.

Many lenders who offer payday loans are available 24 hours a day, seven times a week, and even offer online applications. Requests are easyand approval is made immediately, which makes this type of loan attractive to people who are in dire need of money.

2. No strict requirements.

One of the reasons why payday loans become an easy option for someone who needs instant cash is that it requires less requirements. Unlike traditional loans, they require many requirements to verify your ability to repay the loan. But in payday loan you only need the following:

  • Possess a government ID or social security number
  • Have a job and have a regular source of income
  • Have an active bank account

3. No credit check needed.

Another good thing about a payday loan is that if you have a bad credit history or a low credit score, you can still get one. For payday loans, no credit check is required. This reason makes the personal loan attractive. Moreover, there are already many online lenders who offer payday loans for bad credit.

But beware of this, you can get the money fast but it comes with high interest rate and big penalties if you miss the repayment schedule. This is the biggest downside of taking out a payday loan, and sometimes the reason many people get caught in a cycle of debt.

The disadvantages of a personal loan

If there is an advantage there are also disadvantages to taking out a personal loan and here are some of them:

1. High interest rate.

If you’ve tried to take out a personal loan or used your credit card, you can tell that the interest rate between the two compared to a payday loan is huge. Technically, a payday loan is expensive, which is why some borrowers get caught in a cycle of debt since they cannot repay the full amount on time.

2. Time constraints.

Apart from the high interest rate of a payday loan, time constraints also become the problem. Some lenders offer up to 3 months repayment, but usually payday loans are repaid in one installment, which is a problem for some borrowers. There are monthly expenses and budgeting that need to take place, and paying off a loan in full can be tricky.

3. Collection Practices.

When you take out a payday loan, you and the lender come to an agreement where you promise to pay the amount on time. Since these lenders are extremely cautious, lenders require borrowers to authorize a CPA or Continuing Payment Authority. This allows them to take payment directly from your bank account, whether the money is there or not.

This collection practice makes taking out a payday loan a bad choice. As such, you should exhaust all your resources first before immediately jumping into taking out a payday loan.

Carry

A payday loan is a type of quick fix loan; you will have the money you want without hassle. However, it comes with some drawbacks that require you to be careful. You can still take out a personal loan, but make sure you don’t use it out of necessity and not for luxury expenses. Moreover, you have already gone through all the possible resources for borrowing money. This way you know that taking out a personal loan is the only option you have left.

Norma P. Rex