In today’s time, it is very common for a lot of people to engage in financial issues.
Owing to multiple expenses and debt cycles, there is often a point in one’s life where the person falls into financial crunch.
However, thanks to the financial institutions that allow people to get out of such problems in a short time. Though, critics say that short term loans do nothing but trap middle-class people in a lot of trouble, a lot of people rely on such loans to get out of urgent issues.
So what is the truth behind payday loans? Here, in this article, we will guide you through a series of pros and cons, you must know. Even if you want to get a payday loan with no credit check for the first time, it is highly important that you know the repercussions. Every state has had its take on payday loans, which is why it is crucial to remain equipped with important information. If you want to know about the rules for applying short term loans in your state, you must search for short term loan rules in your state. For instance if you’re from Toronto, you must google payday loans Toronto no credit check to get a list of all institutions that provide such short term loans.
What is a payday loan?
You will be surprised to know that a payday loan is a small loan that ranges between $100-$1500. However, the time period to pay back this loan amount is also less and might range between 1 to 2 weeks. If you are not so impressed by the name “payday loan”, you can take a look at some of the other alternative names, which are:
- Cash Advance
- Payday Advance Loan
- Bad Credit Loan
- Paycheck Advance
- Short Term loan
- Fast Cash Loan
- Deferred Deposit Transaction
The Pros of Payday loans
Here are some of the reasons why people don’t despise applying for a payday loan:
They’re easy to get
This is also one of the first concrete benefits of payday loans. You can easily apply for a payday loan from anywhere at any time. There are not much a great deal of requirements like one has to submit for a business loan application. Furthermore, many cash lenders often promise to return the loan within 24 hours or less. Some loans are so flexible that they can be returned within a week. However, you don’t need to get worried about the application process. Unlike conventional loan procedure where days of paperwork is involved, a payday loan’s application might get completed in less than 5 minutes.
You don’t need to show your credit
Unlike traditional loans, you don’t need to project a good credit score range to get the loan amount approved. Since most payday loans don’t pull out any credit, there is no need for them to check your credit at all. Since payday loans are not offered in hefty amounts, anyone can easily apply for them irrespective of their banking history. People with a poor credit score can also apply directly to a bad credit loans direct lender.
Payday loans are unsecured
Unlike traditional loans where you need to offer something as collateral. Payday loans don’t require the security by any asset or property. This means, if you don’t repay the loan amount on time, the lender doesn’t stand any chance of seizing your property. However, lenders do have some access to your bank account, which is quite a risk. So you can always expect the lender to hound your bank and report to the management at any time.
They have fewer requirements
Traditional loans require days of paperwork, registration of multiple documents, multiple signatures by different people and proof of income. However, payday loans require nothing but some important details that are often mentioned on the identity card. Since these loans are fast, one can easily register within minutes. You have to be minimum 18 years of age and must be a working professional.
Cons of Payday Loans
Just because they’re small doesn’t mean they don’t come with a hefty price tag. Depending on every state, payday loans have high-interest rates. Some interest rates are as high as 400% more as compared to conventional rates. You will be surprised to know that personal loans might charge you between 4% to 36%, while interest rate from credit card ranges between 12% to 30%.
You might get trapped in a debt cycle
Every time you extend the payment time, the payday lender will charge you additional fees for it. This means you might have to pay more than the actual amount borrowed in the beginning. So it is crucial to weigh the repercussions before you register for a short term loan. Therefore, you must pay the loan on time instead of dragging the payment for a long time.
Low-income households get stuck
Financial institutions that offer short term payday loans target lower-income households that often require short term loans to meet their needs. Stats say that most African Americans borrow payday loans as compared to other communities. This means that there are twice as payday lenders in the black communities as are in the white communities.
Payday loans are infamous
They are often considered predatory and unaffordable by many people. The ethos behind such short term loans is to trap people. Critics often define these loans as misleading, unfair and not affordable for many. They have high-interest rates that is why they are hounded by financial experts. One of the notorious sighs of the predatory nature of such loans is that the lender won’t ever ask if you can pay back the loan amount.
So, next time you think of borrowing a short term loan, you must weigh the pros and cons before making your choice. Always borrow money only when you can pay it back without any problem. Financial problems hound every individual in today’s time, so it is important to be wise enough when making any concrete decision.