An emergency can happen to everyone. Good thing there are loan options available to help you meet your unexpected expenses. One of them is payday loans. This type of lending allows you to get a certain amount of cash that you need and repay it, including the interest on your paycheck. On top of that, payday loans are suitable for paying emergency expenses, unexpected payments, buying necessary things but don’t have money at the moment, and or going on a short vacation. To understand more about this lending option, here are some of the benefits and downsides of payday loans that every borrower should know.
Benefits of Payday Loans
A payday loan is one of the best options for an individual who has bad credit scores — which can be a big help to those who have a poor credit history. In addition to that, here are some of the significant benefits of this loan option that may help you decide whether or not it’s a good idea to get one now.
Quick Process
One of the reasons why payday loans are popular is because of their fast and simple process. In fact, this is one of the quickest ways to get money into your bank account. Most lenders target at least one to two hours of application approval to help borrowers pay for their emergency expenses such as car repairs, mechanical damages, due dates, etc. However, the lending company will only approve your loan if you have completed all the essential requirements they need and provided all the necessary information correctly. On the other hand, if your application is rejected, they will also inform you right away so you can have time to find another way to solve your emergency.
Good Credit Score is Not a Requirement
Having no credit score requirement is another good thing about payday loans. You can still be eligible to take this loan even if you have a bad debt service ratio or a poor credit score. Hence, your credit history won’t be verified if you try to apply for this type of loan option.
Convenient
Aside from having a quick process, payday loans are also convenient. Since the majority of payday loan lenders are online, and the process is becoming entirely digital, the borrowers can apply for this loan and receive the money on their account even without leaving their homes or offices. But of course, they should have the essential tools and an excellent internet connection.
Collateral Security is Not Necessary
While other loan options require you to provide collateral security and a lot of requirements, payday loan lenders only require the following qualifications to apply for their lending program:
- You must be at least 18 years old.
- You must have a Social Security number or any government-issued identification card.
- You must have a stable job or other regular sources of income, such as businesses.
- You must own an active bank account.
With these qualifications, you can have an opportunity to get qualified without taking the risk of losing your cars, houses, properties, and other assets that have high value at any point in time.
Downsides of Getting Payday Loans
Payday loans are getting more and more popular, especially to those who have bad credit. Why? Because it doesn’t require a good credit score. That means, they will have a bigger chance to qualify and borrow a certain amount of money they need. However, just like any other loan options, this type of lending has also downsides that every borrower should consider. That said, here are some of the disadvantages you should know before signing any contracts or agreements to apply for a payday loan.
High-Interest Rate
One of the downsides of payday loans is its high-interest rate. In fact, depending on the state, this type of loan option can have interest rates of up to 400%. It is significantly high when you compare it to personal loans that only have 4% to 36% interest and credit cards that only ranges from 12% to 30%. With the significant cost associated with payday loans, you will have a difficult time to get out of it. Thus, to prevent falling into a vicious cycle, it’s essential to pay this debt on the date of its maturation. Otherwise, you will be facing an interest rate that will continue to climb up until you pay off your payday loan.
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Lenders Have Access To Your Bank Accounts
Another negative side of a payday loan is that the lenders will have access to your bank account. Since this type of loan option promotes quick cash approval, lending companies often require you to grant them access to your salary account in order to gain access to a fast cash advance, which is very risky on your side.
Takeaway
Payday loans can be a big help when it comes to emergency expenses. However, with its high-interest rate, it can also be one of your problems in the future if you can’t pay it off on time. That said, it is essential to take an in-depth look at the benefits and downsides of this lending option before signing any agreement or contracts. Ultimately, if you think a payday loan is just too risky to handle, you can go here to know your other options.