If you’ve ever been stuck between a rock and a hard place with making money ends meet, you may have considered a payday loan. These are sneaky little evil things, right? They disguise themselves under alternate names like ‘cash advance’, ‘bad credit loan’, and ‘fast loans’. And yeah, to the unaware consumer, taking a payday loan could have some nasty consequences attached.
If you understand what you’re about to buy into, however, a payday loan might be genuinely helpful. Life gets overwhelming; it’s unlikely you will always be free of money-related stress. It’s OK to take some help on these occasions. As long as you don’t blindly enter a contract due to anxiety about keeping the lights on, a payday loan could be a completely valid option for you. Having said this, let’s discuss the pros, cons, and alternatives to these loans, and whether they are the answer for you.
Pros of Payday Loans
The consensus is that taking a payday loan is essentially the equivalent of shooting yourself in the foot. It’s not smart, and it’s going to hurt a lot. So, why do these companies even exist? Well, in short, you can take advantage of a payday loan because you need the money and there are no alternatives. Whilst, some soulless companies are preying on naivety, the majority are genuinely there for you to use to help yourself.
Convenience of Payday Loans
Firstly, they’re easy to access and come with far fewer requirements than your standard loan. Most of these companies operate online and are paperwork free. This means that you can potentially start and finish the process within 24 hours, allowing you to have your bills paid, ASAP. Typically, all these loans require is for you to be older than 18, have a reasonable income, an active bank account, and a form of ID.
There is often a payday loan for people with bad credit as that is usually why individuals decide that they want to pursue a payday loan.
Less hoops and hurdles
Payday lenders may not check your credit report. If they do, they will also weigh up other factors such as your income and circumstances. This is appealing to the reforming borrower, who has had issues with their credit score in the past. Finally, most lenders won’t ask for any security. This means you won’t have to sign your car in order the be approved. As your loan will be unsecured, this is usually the reason for the high-interest rates. These rates generally aren’t a scam; they’re just covering the lender who may be lending to your possibly shaky credibility.
Cons of Payday Loans
It would be irresponsible to paint these loans as a perfect gift from the gods to people in trouble. Reputations are built on some form of truths, after all, and payday loans do have a negative flip side. Let’s rule out the scammers and the dodgy lenders for this part. Your regular, reasonably honest, payday lenders are just doing business per usual. Issues arise when you cannot repay the loan you were approved for.
Interest Rates
These seemingly ridiculous interest rates are not so terrible if they are repaid in a fortnight or a month, as they are supposed to be. Payday loans are small, short term loans, intended to be repaid quickly before the interest becomes an issue. Great, fine, perfect…until you can’t make a repayment. The longer you have this loan for, the more difficult it becomes to repay. 400% interest is insane if it takes you a year to repay.
Therefore, you need to ensure you can repay this loan before you take it. The biggest con of payday loans is that they make it easier to get stuck in a debt cycle. This means that if you can’t pay it, your only option may be to take another loan. Rolling the loan over means more fees and a larger problem.
Not building credit
Another con is that a payday loan won’t help you build credit. Depending on where you’re from the influence of your credit score may vary. However, payday loans generally only report defaults, rather than positive use. This means that if you’re failing to repay, your debts may be noted, resulting in a damaged score.
Who should and should not take a payday loan?
Now that we’ve outlined the pros and cons of payday loans let’s discuss who should and shouldn’t use them. Let’s start with the people who shouldn’t take one of these loans. If you already have a payday loan, don’t take it. If you know you can’t make timely repayments, don’t take it. If you are American or live in a country without healthcare and have significant medical debt, please do not take it. If you feel like a payday loan is your last resort, don’t take it. Taking a payday loan in these situations will only worsen your problems, and you should seek other solutions.
So, when is it ok to take a payday loan online? If you get paid fortnightly and a pipe bursts on the off week, a payday loan might get the pipe fixed before payday. If you’re renovating and slightly underestimated the costs to finish the job, go for it. If you’ve got some time off work and want to upscale your holiday, a payday loan might cover some additional flight costs. Essentially, if you have a reliable income and encounter a slight setback, a payday loan is for you. If you are unemployed or already drowning in debts, seek help elsewhere.
Alternatives to Payday Loans
You can also consider title loans vs payday loans. Which brings us to alternatives to taking a payday loan. Before you consider a payday loan, you need to weigh up these alternatives. Firstly, review the bills that you currently pay. Figure out if any of these bills allow grace periods that may allow you to prioritise costs. Get a guarantor or co-signer on a larger traditional loan. This means signing a loan with another person to qualify for a longer-term loan with far lower interest rates.
If you are in a country that offers government payouts to cover the costs of living, see if you qualify for any of these payments. If you have some caring family members or friends that may be willing to offer you a hand during a low point, accept their help. This isn’t weak, keeping yourself out of debt means that once you get things back on track, you can repay their efforts. Finally, if available for you, there are some non-profits in existence that offer no-interest loans. This is a far better option than a payday lender in these scenarios.
Please take payday loans with a grain of salt. Understand when they are and aren’t valuable. There are payday lenders and personal loan companies in existence that are not looking to hurt you, or send you to financial ruin. Read the fine print, understand your situation, and borrow responsibly.
