You’re most likely here because you need to make an important expense, but you’re probably low in money so you decided to look up into payday loans and save your credit score with payday loans. Now, most advocates say they allow this kind of loan access to their destitute clients, while others say that this cash advance” method is unjustly using people who are caught in a bad situation, putting pressure on them by charging large fees and offering immense interest rates.
For this matter, I am here to breakdown everything you need to know about payday loans before you take it out.
In this article, I am gonna talk about
• What payday loans are and how do they work
• The pros and cons of payday loans
• Things you must consider before taking on a payday loan
What payday loans are and how do they work
To explain it briefly, the premise on which it works is that someone immediately needs to borrow a small-dollar loan (between $100-$1000) which he will pay back in a 2 week-term when you get your next payday.
This short-term loan is allowed in 38 states where people can get a cash advance from the next paycheck. The qualification for taking a loan is pretty easy considering the low amounts of money, however, this only shortens the repayment term as well.
In order to get a loan. you either go and get one from stores that do this, either apply online. Although some states allow taking up to $1000, most of them actually stop at $500.
You can only get a loan if you passed 18 years old, have an identification document, a checking account, provide proof of having a labor contract and a phone call.
Advantages of payday loans
1) They are easy to get
The main reason people take payday loans is that they desperately need money, which is why lenders allow access to money within 24 hours.
You can easily make an application online or give a phone call any time you want the lenders are operating 24 hours a day 7 days a week and get a loan agreement in as little as 5 minutes.
2)These loans have fewer application requirements than other types of loans
Just like I said in the above there are not so many requirements to make an application, unlike other loans where lenders ask for stuff like Social Security number, and photo ID. Without having to present all these documents, the process of getting money is much faster, however, keep in mind that the papers you have to show are only put in place to protect you and the bank.
3) It is an unsecured loan
Unlike car title or mortgage loans, payday loans are not secured by the bank with your personal propriety. Thus, if it somehow happens that you can’t pay what you owe on time, you, the bank can’t seize your belongings.
Disadvantages of payday loans
1) They have large fees and interest rates
Without a doubt the biggest downside of payday loans is fees. It is one thing to make a delay when paying back or simply paying an interest rate per borrowing, but seeing how much this rate actually transforms into annually, it certainly will disturb you. Most states have an interest rate of about 400%
For example, if you live in Miami, once you get a $500 loan for a term of 14 days, you’ll have to repay $555, which means the finance charge is $55, in Chicago the charge is $80, so it depends on the state…
2) They have misleading terms
Payday loans are considered predatory because of the unfairness some lenders might bring, trying to trap you in a debt cycle.
Keep in mind that some lenders don’t check if you can or not repay the loan, leading you in more fees and then more debts…
Also, the loan doesn’t help you build credit-the lenders might not report the loan to any major credit bureaus like Experian, which will only lead to penalties.
3) They are targeting minorities with low-income to bring them in the cycle of debt
In order to make more profit out of you, lenders usually spot needy people with low-income so they could eventually add additional fees after delays and then bring them in the cycle of debt, however, if you’re sure you’ll have the money to repay and don’t get fooled, then you’ll be alright
Short things you must consider before taking a payday loan
• They usually have high-interest rates, punishing you if you delay, so make sure you’ll pay on time
• You risk destroying your credit, besides pulling you into the debt cycle, you could also hurt your credit rating, something which will
damage your mortgage loans… so be sure the terms are in place,
• Make sure you’ll get paid before the 14 days-term expires
• Do not get used to this kind of loans, while 1 or 2 loans may not mean anything the third one might bring you into a trap…
• There are other options…
Now that you know all the benefits and risks of getting a payday loan, it’s up to you to decide either to do it or not take care.