Payday loans can be convenient, but they can also present problems rather quickly. Let’s see what are the notable pros and cons and see whether they are worth the hassle:
They are quick
When you need money fast, a payday loan could be the solution. While there can be exceptions, payday loans usually arrive in a borrower’s bank account within minutes after approval. This can be quite a relief when you receive an unexpected bill or have a financial emergency that can’t wait.
You will not have to wait and worry for an extended period of time after you apply for a loan. You can receive nearly instant response to your application and even receive the cash fast.
Easy To Apply
The application process is simple. Instead of taking numerous documents to a lending institution, all you need to do is complete a quick online application. The application asks for basic information, such as your name, address, email address, phone number, bank account information, and how often you are paid.
The best approach is to have this information handy when you prepare to fill out the application. Make sure all the information you provide is complete and accurate. After you submit the application, you will hear from a lender who will offer you a loan contract.
No Collateral Required
You will not put your car or home at risk when you apply for a payday loan. Instead of collateral, you are borrowing against your next paycheck. If you receive income on a regular basis, this is usually all the lender needs to know to approve your loan request.
Payday lenders do not require borrowers to have high incomes either. Many lenders will approve loans for people who are on benefits or have other similar forms of income. As long as you have a steady income and show ability to repay the money back, you are likely to be approved.
They do carry high interest:
When you read the details of your loan contract, you will find that loans till payday generally carry a higher interest rate than other types of loans. The default rates are usually higher, so lenders tend to have higher interested charges to cover the potentially losses from people defaulting on the commitments.
The potential of negative impact on your credit score
It is possible for a payday loan to damage your credit score. If you do not have sufficient funds in your bank account to repay the loan when it is due, and you do not immediately contact the lender to make payment arrangements, you can default on your loan. If this occurs, it can have a negative effect on your overall credit score.
In addition, a payday loan in default may be turned over to a collection agency. It is considered the same as any other type of unpaid debt. The collection agency will report this to all three credit bureaus. If the lender files a lawsuit against you, this will also show up in your credit reports. Both of these issues can affect your overall credit for a long time.
They can damage your chances of getting a mortgage
A few mortgage lenders have recently announced they will not approve mortgages for people who had a payday loan in the past. If you are planning on buying a home in the future you should consider carefully whether a payday loans is the right option for you if you need money quickly.
Payday loans have some potential advantages and benefits, but they are not appropriate for everyone. When you start by considering the pros and cons, you can decide whether they are the right choice for you and your specific situation. If you borrow and repay responsibly, you may have a good experience without unnecessary complications. If not – the consequences might be more than you bargained for so be really careful.