For people who need immediate funding for any emergency expenses, payday loans are a popular option. A payday loan offers a financial solution by providing quick cash even for people with bad credit. However, a payday loan is a not a one-size-fits-all solution, there are certain things that borrowers need to consider.
Here’s why many people decide to take payday loans, despite the usual negative connotations:
PROS of Payday Loans
#1 Few requirements. Compared to traditional loans offered by banks and other traditional financial institutions, a payday loan has significant few and basic requirements. Traditional lenders will usually require personal ID, Social Security number, proof of employment and income, and a credit check for them to see if you are financially capable. In payday loans the requirements are quite basic:
- Must be at least 18 years of age
- Government-issued ID or Social Security number
- Regular source of income
- Active bank account
#2 Very easy to access. One of the best advantages of payday loan is that it provides quickest and easiest access to cash funding. The usual release of loan amount is within 24 hours. Most payday loan lenders are also available 24/7 and accessible online. Interestingly, loan apps can quickly process loan applications in as little as five minutes.
#3 No credit checking. People with bad credit can easily take a payday loan since it does not require credit history.
#4 No collateral needed. Another key feature of a payday loan is that it falls under unsecured loans wherein it does not require any collateral. This will benefit the borrower since his property or car will not be at risk if ever there is failure in repayment.
If you are looking for more options for payday loans, you should check the history of Lending Club, wherein you will find out about an innovative way of lending money.
CONS of Payday Loans
#1 Payday loans have high interest rates. What makes a payday loan incur a higher interest rate than the usual traditional type of loans is the fact that this falls under the unsecured loan category. This is one way for the lenders to balance off the risk they take when they approve an amount for a loan.
#2 Tendency to get a trap on a debt cycle. With higher interest rates and short repayment period, borrowers have the tendency to rollover or request for a loan extension which will absolutely incur additional charges.
Before applying for any kind of loan, the borrower must weigh the pros and cons because each loan has its own set of advantages and disadvantages. The loan that you will apply for must cater or perfectly serve whatever purpose you have for it. Make sure that the loan you take out will contribute to the betterment of your current financial status. There is no small or big amount when it comes to loans. Sometimes, even small funds can do great help and there are also times that a huge amount can do nothing because the borrower does not know how to spend the money wisely. It all boils down to proper debt management.