Payday loans, also known as loan advances, are a type of short-term and unsecured loans.
Payday loans have become quite popular in the recent years and most individuals use them to cater for emergencies that may arise and then pay off the loan when they receive their salary.
However, are payday loans as good as they are thought or marketed to be?
Are there any disadvantages that may arise from taking up a payday loan? Read on to find out.
Advantages of payday loans:
1. No collateral
Unlike secured loans whereby you may lose your property which has been taken as collateral for the loan, payday loans are unsecured and this offers you the opportunity to have a worry-free debt.
The guarantee that the payday lender will need is a post dated check.
2. An easy and fast application process
The application process for payday loans is surprisingly fast. You may only spend less than an hour to complete the application forms. Unlike other lenders, payday loan lenders do not do credit checks.
Thus, you save the hassle of having to fill out details such as your credit history. Online payday loans are even faster. A borrower only needs to spend a few minutes to submit their application.
Payday lenders are willing to award loans to borrowers regardless of their credit history. Unlike other types of lenders, payday lenders do not consider a low credit score as a hindrance to accessing funds. The amount to be borrowed will be determined by the individual’s expected salary. The internet has also made it easy for individuals to get payday loans online.
4. Fast payday loan approval
After the payday loan application has been submitted, approval occurs within a short period of time.
The fact that there are few details to look into makes it easier for the payday lender to review applications.
A borrower can get the funds as soon as an hour after approval.
Disadvantages of payday loans:
1. High-interest rates:
Just like other types of cash advances, payday loans are associated with high-interest rates. Therefore, you should ensure that you have a good plan to pay back such a loan when applying for one.
According to the Credit Courier, some payday lenders can charge an annual interest rate of up to 500%. This is a higher rate compared to most average interest rates out there. According to MSN.com Marketwatch, the average interest rate for payday loans is 400%.
In addition to the high-interest rate, a borrower may have additional expenses in the form of fees. Should a borrower send in a late payment to the payday lender, they should expect a penalty charge. This may be $15 for every $100 borrowed or more.
3. Contracts that favor the lender
There are payday loan contracts which highly favor the lenders. Should borrower fail to honor any of the terms of the contract, they will be disadvantaged in the eyes of the law. Some payday lenders also take advantage of borrowers who may not have read the contract carefully before signing it. This is because some details which can be easily overlooked are enforced and this makes the payday lender have an unfair advantage over the borrower. You should, therefore, ensure that your search for a quick source of funds does not eventually make you become one of those unfortunate individuals who have to bear the brunt of such unfair contracts.
4. Loan collection practices:
Because payday lenders award unsecured loans based on the ability of a borrower to repay it, they may resort to unethical loan collection practices.
Such tactics may include calling up your workplace or family members as well as threatening to arrest you.
Consumer protection agencies are doing their best to protect borrowers from such tactics.
Should you experience this, you may contact your attorney for advice on how to protect yourself from further bad loan collection practices.
If you are seeking a payday loan, try as much as possible to ensure that your situation can help you benefit from the advantages that it brings.
You should also pay the loan when it is due, as the failure of prompt repayment may lead to you being penalized by the terms of the loan contract.
While instant payday loans can be of great benefit, it should be repaid instantly as soon as you receive your salary.