When times get tough, we get desperate. Payday loan companies come to the “rescue” for those with financial problems and eventually make these people regret their decision. However, its benefits cannot be disregarded; that’s why it is an attractive option for some. It’s just a matter of knowing if it is the right call for the situation at hand.
What is a payday loan?
A payday loan is a short-term, high-cost loan. You can easily take out small loans ranging from $1,000 to $5,000 and larger loans of up to $10,000. The borrower must pay it within 16 days and a year.
To settle your payday loans, the lender takes out an amount from your debit card, often on paydays. Ideally, you should have enough money in your account to cover the repayment and other expenses.
Before you agree to it, it’s essential to know more about the pros and cons of a payday loan to see if it’s the right cash fix for you.
Pros of a payday loan
Payday loans aren’t all bad. They can help you out in emergencies and other unexpected bills you cannot shoulder immediately. If you are prepared to take on the payments, it can support you along the way. Here are some of the pros of a payday loan.
Get the cash on the same day as your application. People are drawn to payday loans because of the convenience it offers. You can send your application today and walk out with the money in hand before dinnertime. The bank can also deposit the funds to your account within the day or the following business day.
Easy payments. Banks have made it easy for borrowers to settle a payday loan. Agree on a date, usually a payday, and the bank will automatically deduct the amount from your salary. For the meantime, you can worry about more important things.
Take care of your financial needs right away. It can be useful to settle bills and other debts if you take out one today. Enjoy a momentary sense of relief after paying obligations, especially those that are critical and need to be paid as soon as possible.
Cons of a payday loan
Good news! You used a payday loan to settle a previous debt. The bad news is that now, you have an entirely new debt in front of you and could be more significant and scarier than the last. This is essentially the con of a payday loan. Others are:
The need to pay it back asap. Because this loan is short term, you should pay it as soon as possible. It can be a problem for a borrower who’s facing financial difficulties.
Ridiculous interest rates. Every convenience comes with a price, especially with payday loans. They are known to have high-interest rates, so you will have to pay back at least 125% of the agreed loan. There are even cases wherein the interest rate climbed up to 800% when you add finance charges on top of everything else.
Negatively affects your credit score. Failure to pay back the loan can result in debt. We mentioned above how payday loans are deducted from your account. If you fail to provide enough funds in time for the day of payment, you can expect the penalty or late fees to come. The longer you stay in debt, the bigger chance it decreases your score.
Quickly buries you in debt. It’s easy to get into debt when you’re in the hole for more than a thousand dollars and have no means to pay it back. There are ways to help you get out of debt, but it’s always better to prevent it rather than curing it.
Are you prepared?
Are you mentally and financially prepared for a payday loan? Remember to weigh on your decision carefully to avoid getting into deeper debt. If you need the money for a big purchase like a car, then consider other options.
A smart way is to get a car lease. With it, you can get a reliable car that you can drive just about anywhere at a more affordable price. The best part is that you can improve your credit score little by little with each payment you make on time. Get in touch with Alpha Finance today for that family car you’ve always wanted.
A professional writer with more than five years of experience in creating content that appeals to broad audiences. Her portfolio for Alpha Companies has largely included financial literacy, lifestyle and travel topics.