Payday Loans: The Pros and Cons

If you're in a tight spot financially, you'll no doubt be tempted by the various adverts for payday loans. The concept of quick, easy money is alluring, of course, but if you've done your research you will also be aware of the many horror stories of people drowning in unmanageable debt thanks to short-term finance options. These clashing views can be confusing, and when you have bills piling up or a broken car to repair it's hard to know what is the right choice for you.

The Rise of Payday Loans

payday advance loans and why you should get them - Whatever you think of them, the fact is that payday loans are everywhere and their popularity has been steadily rising for years. Studies show that 80% of American consumers have some form of debt and around 12 million people take out payday loan each year in the USA. It's not just those living in poverty, either; the average income of those taking out short-term finance is $30.000 per year, and these loans are taken out for a number of reasons.

The top reasons for taking out payday loans are:

• Car repair

• Credit card payments.
• Mortgage assistance.
• Routine living expenses.
• Financial crises.

So, the myth of the irresponsible consumer taking out short-term finance for luxuries is... well, it's just that - a myth. Payday loans are used by millions of people to meet real-world needs, and the truth is that they have as many benefits as drawbacks.

The Benefits of a Payday Loan

With all the bad press, you could be forgiven for thinking that payday loans have no benefits, but that is simply not true! When taken responsibly and repaid on time, short-term finance can provide much-needed relief from financial crises and give you the extra boost you need to make ends meet. Of course, the specific benefits depend on your situation but these are some of the most notable.

1. Speed: When you need money fast there are few finance options which can compare to payday loans. Most lenders can have the cash to you within 72 hours of approval, and approval times can be as low as 15 minutes! 

2. Borrow Small: Unlike traditional bank loans, which most often start at $2,000 to $5,000, most short-term lenders allow you to borrow as little as $100 and can offer up to $10,000 (though $5,000 is the most common higher threshold). By borrowing only what you need, you minimize your debt and still cover your costs. 

3. Borrow Discreetly: If you're not a fan of borrowing money (and who is), it can be embarrassing to ask friends and family for help. Short term finance is discreet and easy meaning that you can keep your finances private even when things are a little rocky. 

4. Responsibility is Rewarded: Many lenders offer rewards in the form of higher borrowing thresholds to those who regularly borrow and pay back their loans on time. By building a rapport and history with a single lender that you trust, you can rest easy knowing that you have a safety net in case anything should happen.

Of course, there are drawbacks and risks to payday loans, too!

The Risks of a Payday Loan

As with most things, payday loans are not all good; there are drawbacks and risks associated with short-term finance that you should be aware of. Keep these things in mind when deciding whether to borrow and how much to take.

1. Higher Interest Rates: the most obvious drawback to short-term lending is the drastically increased rates of interest that you will encounter when applying for payday loans. Whereas credit cards can go up to 30% interest, the average payday loan has an interest of 391%! 

2. Late Fees: alongside the matter of high interest, there are late fees. If you cannot pay back your loan within the allotted time your lender will still try to take the payment from your bank. If there is not enough they will most likely add late fees (or 'renewal fees') to your balance and continue trying to collect the money. This will also incur charges from your bank. 

3. Damage to Your Credit Score: When you miss or default on loan payments you will cause real damage to your credit rating and make it harder to get finance in the future. 

4. Debt Build-Up: if you cannot meet your obligations and fees start to pile up, you could be in real danger of ending up with unmanageable debt.

There are other downsides to short-term finance, but these are the most commonly noted issues that people face.

Sum Up: The Pros and cons

In short, payday loans are just one of the many financial tools that we, as consumers, have at our disposal these days, while there are risks and benefits it falls to us to make sure that they are the right choice for us. When used responsibly, a short-term loan can help you to meet a crisis or break down head-on, but irresponsible borrowing can lead to real issues. Here's a bite-sized reminder of the pros and cons!

Pros:

• Quick
• Discreet
• Flexible. . Convenient
• Smaller sums of money available.

Cons:

• Higher interest rates.
• Late fees are applied if you don't pay back on time.
• Will damage your credit score if payments are missed.
• Debt can mount up quickly when left unpaid.