A payday loan is a very short-term loan with lenders operating daily. They are very popular among people who have a source of income but don’t really have another option to get a loan, since they aren’t backed by properties or other kinds of warranties. So, is this really a good deal for you as a borrower? Why get a payday loan and what benefits bring it to you?
Payday loans are one of the most famous financial transactions you will find in the US. In fact, Pew Charitable Trusts says that “12 million Americans take out payday loans each year.”
There’s no doubt about it since it’s one way to get a fast cash release in advance, even though you may have no savings, bad credit, or no credit record at all.
Now, thanks to the internet and its wonders, people don’t need to go directly to lenders in order to get their loans. They can just sit in front of their computer type a few words like “online payday loan”, apply on one of the websites, and get an answer in just a few minutes.
Here’s an example of how they work: Let’s say it’s January 15th and you have an emergency. You don’t have an emergency fund, so you go to your bank account and it’s barely covering your expenses, so you can’t take money from it.
You go to a lender and ask for a $600 loan. Be assured that they are gonna say yes, but it’s not gonna be cheap. The lender will make you sign a postdated check for $690 that will be discounted from your checking account in 2 weeks. Once the deal is closed, you’re out of debt.
Seems easy, right?
Well, the truth is that $90 for a $600 loan in two weeks is not cheap, but getting that money you need so urgently has a cost.
Why get a payday loan?
People tend to ask for payday loans when they are in a hurry. Actually, the entire application process only takes a few minutes and you usually leave with more money. This is because lenders usually have a limit on the size of the loan, which is $1.000.
If someone asks for more money than that, they will take more time to approve it.
The other thing is that lenders only take a quick look at your finances. This has a lot to do with the previous point.
They’ll only need to know if you’re getting income and a bank account where they can get that money from when the time comes. They do this so they can know if you actually have the ability to repay them.
On the other hand, they can be easily renewed. You will only need to pay the charged fee in order to extend your contract and get the extra money. The principal won’t change, but it will borrow some time to repay it.
So, we’ve been talking about why getting an online payday loan, but do you know its benefits?
What are the benefits of getting a loan?
Now, let’s not say that things are wrong with payday loans. After all, if people are using them, it means that they have to be helpful somehow.
Here’s why this kind of loans can benefit you:
- You can get payday loans with bad credit.
- The application process is quite simple.
- The application for payday loans online is now a reality, which makes it even easier to get.
- It can solve an emergency when you have it.
- The money you get can be used for anything you want.
- It can actually help you to save some money if you have the ability to repay it.
- They are available 24/7.
- The credit is controlled by you since you can completely ask how much money you want.
- It has a short-term impact on your finances.
As you can see, payday loans are one of the quickest ways to have money when you need it. It will solve your urgency and if you play your cards well and it can actually help you to save money from other debts that you may have (e.g the credit card).
But it also can be a little nightmare if you don’t know what you’re doing. So we recommend that if you are going to take a loan like this, only take what you can actually pay so you can avoid a debt trap.
Now, if you have a choice, another alternative to get money is by a personal loan, which usually has low interest rates, even lower than the credit cards. They have other requirements, but it would be great if you can check first if you can apply to this type of debt instead of a payday loan.