Nowadays, it is very common for a lot of people to get involved in financial problems.
Due to multiple spending and debt cycles, there is often a point in life when a person falls into financial crisis.
However, thanks to the financial institutions which allow people to get out of such problems in no time. Although critics say that short term loans only trap middle class people in a lot of trouble, many people rely on these loans to get themselves out of pressing problems.
So what is the truth behind payday loans? Here in this article, we are going to walk you through a series of pros and cons that you should know about. Even if you are looking to get a payday loan without a credit check for the first time, it is very important that you know the repercussions. Every state has had its opinion on payday loans, which is why it is crucial to stay equipped with important information. If you want to know the rules for applying for short term loans in your state, you should research the rules for short term loans in your state. For example, if you are from Toronto, you should search on Google Toronto payday loans no credit check for a list of all the institutions that offer such short term loans.
What is a payday loan?
You will be surprised to know that a payday loan is a small loan that ranges between $ 100 and $ 1,500. However, the repayment term of this loan amount is also less and can vary from 1 to 2 weeks. If you are not that impressed with the name “payday loan”, you can take a look at some of the other alternative names, namely:
- Cash advance
- Payday advance loan
- Bad credit loan
- Payday advance
- Short term loan
- Quick cash loan
- Deferred deposit transaction
The benefits of payday loans
Here are some of the reasons people don’t look down on payday loan applications:
They are easy to obtain
It is also one of the first real benefits of payday loans. You can easily apply for a payday loan from anywhere at any time. There are not many requirements like the one you have to submit for a business loan application. Additionally, many lenders often promise to repay the loan within 24 hours or less. Some loans are so flexible that they can be paid off within a week. However, you don’t need to worry about the application process. Unlike the conventional loan procedure where days of paperwork are involved, a payday loan application can be completed in less than 5 minutes.
You don’t need to show your credit
Unlike traditional loans, you don’t need to plan for a good credit score range to get approval of the loan amount. Since most payday loans don’t take any credit, they don’t need to check your credit at all. Since payday loans are not offered in large amounts, anyone can easily apply for them regardless of their banking history. People with bad credit can also go directly to a direct lender for bad credit.
Payday loans are unsecured
Unlike traditional loans where you have to offer something as collateral. Payday loans do not require collateral for any asset or property. This means that if you do not pay off the loan amount on time, the lender has no chance of foreclosing on your property. However, lenders have some access to your bank account which is quite risky. So you can always expect the lender to hunt down your bank and report to management at all times.
They have fewer requirements
Traditional loans require days of paperwork, registration of multiple documents, multiple signatures by different people, and proof of income. However, payday loans only require a few important details which are often mentioned on the ID card. Since these loans are quick, one can easily enroll in a matter of minutes. You must be at least 18 years old and be a working professional.
Disadvantages of payday loans
They are expensive
Just because they’re small doesn’t mean they don’t have a high price tag. Depending on each state, payday loans have high interest rates. Some interest rates are up to 400% higher than conventional rates. You will be surprised to know that personal loans can charge you between 4% and 36%, while the interest rate for credit cards ranges between 12% and 30%.
You could be trapped in a cycle of debt
Whenever you extend the payment term, the payday lender will charge you additional fees. This means that you may have to pay more than the actual amount borrowed at the start. It is therefore crucial to weigh the repercussions before signing up for a short term loan. Hence, you have to pay off the loan on time instead of dragging out the payment for a long time.
Low-income households are stranded
Financial institutions that offer short-term payday loans target low-income households who often require short-term loans to meet their needs. Statistics say that most African Americans borrow payday loans compared to other communities. This means that there are twice as many payday lenders in black communities as in white communities.
Payday loans are infamous
They are often considered predatory and unapproachable by many people. The philosophy behind these short term loans is to trap people. Critics often define these loans as deceptive, unfair, and unaffordable for many. They have high interest rates which is why they are tracked down by financial experts. One of the notorious sighs of the predatory nature of these loans is that the lender will never ask you if you can repay the loan amount.
So the next time you think about borrowing a short-term loan, you will need to weigh the pros and cons before making your choice. Always borrow money only when you can repay it without any problems. Financial problems haunt every individual at present, so it is important to be wise enough when making concrete decision.