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Most advocates and lenders grant payday loans to people who are poor or have zero credit in their bank accounts. People say that payday loans are also known as short-term or cash advance loans that certainly target the minorities and trap people for lengthy cycles of debt. Moreover, if not paid on time, people are expected to pay higher finance charges along with higher interest rates.
In the article below, we have mentioned a breakdown to help our readers figure out the procedures themselves. We’ll describe what is a payday loan and how it is supposed to work. Moreover, we have mentioned the advantages and disadvantages of payday loans with some reliable alternatives to select from in order to receive the loan with some form of security and guarantee.
What is a Payday Loan?
Generally, a payday loan is considered a small-dollar loan that is usually for about 100 to 1500 dollars. This loan is supposed to be repaid between a two-weeks term that is also due in a single lump amount on the very next payday or paycheck of the borrower. That is how this loan is described in theory.
Moreover, some other names for a payday loan include, cash advance, short-term loan, fast cash loan, payday advance loan, bad credit loan and paycheck advance.
If a payday loan fails to ring a bell, the above-mentioned loans are some beneficial terms of it.
Furthermore, according to the Consumer Financial Protection Bureau (CFBP), for a borrower to repay a loan, they are expected to write-up a post-date along with the full balance on a cheque which includes additional interest rates as well. Other than that, an individual is expected to provide the lender with complete authorization of their credit union or prepaid card account. In case the borrower does not repay the loan on time which is the due date, then the lender can cash the provided cheque or withdraw the money from the bank account electronically.
Payday loans are famous for targetting the poor people who live paycheck to paycheck or people with no additional balance or credit amount in their accounts. These people have little financial literacy and strength, who need cash on an immediate basis for certain needs. But does an individual have more options to fast access cash on an instant basis rather than a payday loan, if they have bad credit or no credit?
Well, they can surely explore some reliable and dependable alternatives of payday loans in order to save themselves from the trouble later.
Disadvantages of a Payday Loan:
The Federal Trade Commission is a government regulatory body that focuses on the prevention of fraudulent acts along with making sure that deceptive and unfair business practices are stopped. This government sector states that it’s better to find alternatives than to receive a payday loan. If this is not possible then make sure that you use the loan by limiting the amount of it. The consumer should only borrow as much as they can afford to repay with ease in their next paycheck. Also, it is important to make sure that you make up your budget with enough money till receiving the next paycheck after you repay the loan.
All of this brings us to the disadvantages and advantages of a payday loan.
- Expensive Cost with Higher Interest Rate and Financial Charges
Depending on the laws and regulations of different states and countries, payday loans are considered to be effective with higher interest rates that mostly average for about 400 percent. In order to compare payday loans with personal loans, many personal loans tend to charge interest for about 4 to 36 percent in total. Moreover, the interest rate of payday loans ranges from 12 percent to 30 percent in total which makes it more expensive to repay with finance charges.
These loans not only charge higher interest rates but also requires high financial charges if not paid on time. The finance charges for payday loans are generally calculated from 15 percent to 100 percent but can become as high as 30 to 100 dollars. The finance charges are applied with the interest rate after the consumer becomes unable to pay the loan on the specified deadline.
Advantages of a Payday Loan
Here are some reasons why people turn to receive payday loans despite knowing the negative and unhelpful consequences of it.
- Easy Access To A Loan
This is considered to be the most effective advantage of receiving a payday loan as it is easier to get access to a payday loan. Many lenders or merchants agree to pay cash on a short-term basis within 24 hours making an immediate lending decision. Most of the lenders are available 24 hours a day and 7 days a week as they also provide payday loans online with a requirement of fulfilling a payday loan online application. These applications take less than five minutes to be completed.
Moreover, you can check applications of the best payday loan online at Personal Money Network.
- Fewer Requirements To Fulfil As Compared To Other Loans
Lenders who work on a full-time basis or traditionally only require a few demands to be fulfilled. These include a social security number, photo ID, a credit cheque, proof of income and the ability to verify the repayment of a loan by the borrower. But unlike traditional personal loans, the requirements of a payday loan are fewer to apply.
To apply for a payday loan, an individual needs to be of at least 18 years of age with having an ID card, issued by the government. Moreover, it is required for the borrower to have a proper source of income a reputable and regular job with an active bank account to verify the lender for the repayment of the loan.
All of these requirements are supposed to secure the borrower from the lender who is frauds. These requirements are set by the government in order to help protect the consumers.