Most of the time a payday loan is viewed as a simple notion from a financial perspective. However, when one realizes the truth about the absence of other credit alternatives, this proves to be a misconception. To understand payday loans better, let us explore this remedy for unexpected financial emergencies.
Payday Loan Definition:
A payday loan is an alternative form of credit that helps bridge the gap between paychecks for those with low credit scores or low income. Also known as deferred deposit loans/check advance/post-dated check/cash advances/short-term loan, it is generally secured by checks or a bank’s account debit authorization.
The Process to get yourself a Payday Loan:
Depending on whether payday loans or installment loans are legal or heavily regulated in the state where you live in, you can apply for such a thing. The process to avail a payday loan is pretty simple nowadays. Either apply for payday loans online or walk up to a payday lender’s store.
- Provide some personal and financial information like proof of income, driver’s license, a Social Security card and a bank account number.
- Request a loan of a starting amount of $100.
- Pay a fee for the loan depending on the state you live in.
- Receive the cash/deposit into your bank account.
Demographic and Geographic Facts about Payday Loan Usage:
If we look at the demographic and geographic facts related to payday loans, it is evident that people within the age bracket of 20 to 45 with a household income of less than $40,000/year and residing in urban parts are more likely to borrow money using this channel. This includes the level of education is lower than the four year Degree College, renters, unemployed, disabled, separated/divorced and parents of children who are dependent. The reasons can be numerous like redundancy, avoiding embarrassment, canceling debts, seasonal holidays, bills or mortgage repayments or at the worst, medical emergency. No matter what the need, quickly injected cash through a payday loan can prove to be a rescuer.
Now that we are aware of the basics about payday loans let’s discuss some pros and cons related to the latter.
Pros of Online Payday Loans:
- The online process doesn’t take more than 5 minutes and money can be deposited directly to the borrower’s account. In nonexistence of other financial options, a payday loan is virtually an instant and easy fund borrowing option if an emergency strikes.
- As the loans do not require a traditional credit check, irrespective of whether the credit score is good or bad one can obtain a hassle-free short-term loan. A lender with a good business practice usually considers the borrower’s ability to repay the loan off based on the borrower’s most recent paycheck and never loan out more than borrower’s capacity to pay back.
- Due to fewer barriers to approval, the loans are approved instantly and the amount is deposited generally within 24 hours.
- As per the surveys, it is a useful service for most of the borrowers as they get either highly satisfied or just satisfied.
- Internet payday loans are safe, confidential and secure with strong SSL encryption.
- As per law, a payday loan recovery cannot be publicized. Although they can ask to repay over phone calls (even if you are at the workplace), it provides a sense of anonymity.
- Customer support is always available to assist barring weekends and holidays.
- With this alternative way to get a loan, low-income group individuals are protected from the black market and loan sharks.
Cons of Online Payday Loans:
- The interest rates are rather high as compared to the standard bank loans or mortgage loans because just like banks contend with each other to acquire loans for customers, payday loan financial institutions do not always have to be that competitive.
- Lenders of a payday loan are known to lend high-risk individuals and as a result, they may have taxing clauses. Hence it’s important to thoroughly understand the loan contract before making a decision and accept only if it’s comfortable.
The key to avoiding the cons is simply not to miss the repayment of the loan at stipulated intervals. At the dawn of crisis, it almost seems impossible to find a way out. Panic strikes when one has tried all other credit sources and is tapped out of options.
An instant payday loan is definitely a bailout option for those in need of fast cash for a short duration but has no other option as to where to borrow from. Making the choice to go for a payday loan needs to be an informed decision depending on whether consuming such a financial service is apt for that particular individual’s situation. It is imperative to understand that a payday loan should only be taken out for a legitimate need of financial help; just to tide over next payday and not to fund a leisure activity!