Payday Loans : Pros & Cons

Payday loans are used to get fast cash on demand if you are in a tight spot and urgently need additional money. The idea of a payday loan is to be an advance on your next paycheck so your next paycheck will be used to pay off the payday loan. These loans target people with poor or no credit, or little financial literacy, who need access to cash immediately. But if you have bad credit or no credit, what other options do you have to access fast cash in an emergency?

There are so many pros and cons of taking payday loans. Some of them are:

Pros:

> Less requirement than other loans :

Traditional lenders usually require a Social Security number, photo ID, proof of income, a credit check and will verify your ability to repay a loan. Unlike traditional personal loans, most “fast cash” loans have fewer requirements to apply.

> Not secured :

Unlike other loans, payday loans are not secured by personal property. This means that if you are defaulter (don’t pay), the lender can’t seize your property or business as a consequence.

> There is No requirement for good credit score: You will be eligible for payday loans even if you don’t have the best credit score or debt service ratio. Your credit history won’t be verified.

> Loan amount determined by income: You will only get a percentage of your monthly income. So, even if you want to borrow more, you can’t and this acts as a check on irrational borrowing.

Cons:

> High interest rate : Payday loans have one of the highest rates of interest. It is almost comparable to credit card rates of borrowing. The rate on defaulting once could suddenly become double.

> A bank account is a must:

Another potential drawback to payday loans for borrowers is that you must have a bank account. Lenders deliver your loan amount and withdraw your repayment with the help of direct wire transfer to and from your account.

> May not be available in your state:

For residents with an immediate, short term cash need in some states, payday lending may not be an option.