How do you know if something is good or bad? The easiest way would be to compare both the good and the bad and see which ones come out on top. Why do we ask this? Well, many people consider payday loans to be the actual opposite of a blessing in disguise, but then again – we’re not so sure about it. We want to know the objective truth.
Sure, getting a payday loan is not your best option, but then again, is it really that bad that it should only be used as a last resort? Well, let’s find out!
What Is A Payday Loan?
Let’s start with the basics. To put it simply, a payday loan is an unsecured personal loan, often not too high, that you usually must repay by the time your next paycheck comes. Considering these loans are generally small, and there are basically no prerequisites for securing them, they come with significantly higher interest rates compared to some other personal loans. Also, these are no strangers to hidden fees.
As you can see, this isn’t painting a pretty picture, and it is almost apparent why this would be a last-ditch resort for many, but still, let’s take a look at the whole picture before we cast judgment.
The Pros & Cons Of Payday Loans
Comparing the pros and cons is a vital step in figuring out whether something’s good or bad. Sure, it doesn’t paint the whole picture, but then again, you can pretty much tell what’s going on the canvas just by looking at the pros and cons.
Let’s start with the pros to lighten up the mood.
They’re Fast & Easy To Get
When you need money now, and you don’t want anyone to ask any questions – it’s payday loans time. In most cases, you will have to wait around for a few days or weeks to find out whether you’ve secured a loan or not, but with payday loans – you will usually get the money during the next day. You won’t have to wait for approval or anything of sorts. Just go online, and if you meet the minimal requirements, which are basically “exist and have some kind of a job” – you’ll get the approval within the first five minutes, and from then it’s only a matter of time before the money’s in your bank account.
Minimal Requirements
Most lenders will require you to submit a whole lot of documentation before you’d even begin discussing a loan. With payday loans, on the other hand – there’s no need for any of that. As we said a moment ago, you basically need to have a job, and that’s it. Usually, all you have to do is be older than 18 years of age, have a government-issued ID and a Social Security number, have proof of work and regular income, and finally, have an active bank account, so you can receive the funds. That’s all.
Credit Score Doesn’t Matter
It’s almost ludicrous that we are able to talk about loans and say that credit score doesn’t matter, but in this case, that’s true. According to various sources, including www.speedycash.ca, a payday loaner will not check your credit score. It doesn’t matter if your credit score is in the high 700s or non-existent – you’ll still get the loan. However, this also means that repaying this loan in a timely fashion will also not positively affect your credit score, seeing how it didn’t matter in the first place.
No Collateral
As we’ve said in the beginning, a payday loan is an unsecured loan. Loosely translated, this means that there is nothing that your lender can seize if you don’t repay the loan on time. To be fair, if you are getting a $500 loan, the only thing you could offer as collateral would probably be a TV, but still – there will be no property seized if you don’t pay them back.
Now, let’s check out the cons.
High Interest Rates
Obviously, the biggest drawback of the payday loan are the incredibly high interest rates. An average APR for a payday loan is around 400%. To put things into perspective, if you borrow $500 from a payday lender in about 2-3 weeks, you’ll be paying them back anywhere between $550 and $600.
They’re Risky
To put it simply, taking out a payday loan is risky, to say the least. We could say that it doesn’t matter if you are sure that you’ll be able to easily pay it back in the next few weeks, but the reality is, if you’ve come as far as to take out a payday loan – you probably won’t. If you rollover and don’t repay everything right away, you’ll get trapped in a vicious debt cycle of additional and hidden fees, which will result in you paying off at least twice as much as you’ve borrowed in the first place.
What To Do If You Can’t Repay The Loan?
If you’re sure you won’t be able to repay the loan, your best option would be to call your bank and stop the recurring payments. This will prevent the lender from charging your account with the sum you owe and should give you a little more time to get your finances in order. Keep in mind, you’ll probably have to contact the lender before you cancel your CPAs to let them know you’re about to do it. At that point, they’ll probably try and convince you to rollover your debt, but whatever happens – don’t do it!
Final Verdict – Should A Payday Loan Be Your Last Option?
As you can see, a payday loan is far from perfect. To be fair, it’s not even close to being perfect. However, sometimes, a payday loan is your only option. If you have bad credit and no other options, and you need a loan urgently, then sure, go out and take out a payday loan. You can look for another option which is called conforming loans. To learn more about conforming loans, read here.
The thing is, it’s not like you want to take out a bad loan – you just don’t have any other options. On the other hand, if you do have other options, then, by all means, a payday loan should be your last resort. You’re much better off finding the money some other way.