A payday loan is a short-term, unsecured, and expensive loan that is repayable on your upcoming payday. This could be a great option if you need some cash urgently. The banks or any lender for that matter will check your income to assess your repayment capacity and will grant you the loan.
Features of a Payday Loan
- Easy to access: Visiting the lender and briefing about the need is the first stage in getting a payday loan. By filling a small application form the process begins. Most lenders are now offering a payday loan online. The process is very simple and everything is completed online.
- Online application procedure: In the application form essential personal credentials like name, age, occupation, and source of income, etc. are asked.
- No credit Check: Though, having a check on the credit report is an essential part of any loan, a lender who offers a payday loan will not do a credit check.
- Small documentation: As Payday loans are a quick solution for any cash need, documentation is less, and so the loan is easily approved.
- Unsecured Loan: Payday loans are always unsecured, no collateral or security is demanded in these loans.
- Repayment: As a payday loan is a short-term loan. The repayment date of a payday loan must be done in 15 days or it is due by the next payday.
Counting on your cash and worrying about meeting the upcoming expenses, could be a very common situation for many people. Having some financial crunch and then meeting them up by borrowing a payday loan can be a great help. But, there are a few reasons which could make this a bad idea too. A few cons of a payday loan are as follows which, instead of helping you out, can get you into a credit bubble.
Reasons Why You Shouldn’t Use Payday Loans to Borrow Money
- High Cost of Loan: Getting a payday loan is an expensive thing. Processing fee, origination fee, standard fee, NSF fee, late payment fee, etc. are charged on the loan. Since a payday loan is given for a very short period, these charges may not seem so high, but if you see the bigger picture, these collectively amount to 400% of the loan in a year.
- Bigger rate of interest: Payday loans provide quick cash support. Without lengthy documentation or a hard credit check, the loan is disbursed. This convenience is charged heavily by the borrower in the form of a high rate of interest.
- Chances of Debt Trap: You may take a payday loan when no other solution is available. As these loans must be paid in a short duration, it is not always possible that in such a short period the financial state of the borrower improves. To repay the loan under such situations the borrower may take another payday loan and then another, thereby creating a debt trap.
Rather than bailing you out of financial problems, a payday loan could rather cause your debt to move up. So, it is better to avoid these loans. But, monetary needs could be unforeseen and urgent as well, in such situations, applying for some financial support becomes a must. A few favorable options are listed below that could help you out.
- Personal Loan: A personal loan can be taken by anyone, a professional, working employee, or a business person. These loans are granted for any amount of the loan depending upon your credit score. Also, a personal loan can be both, a secured and an unsecured one.
- Credit Card: Credit card is a fast-moving open-end credit facility. You can have one and keep using it in need. There is a pre-approved limit on it, and you pay interest only on the amount used. Regularly, maintenance charges and other fees are levied on the borrower.
- Line of Credit: A line of credit is a credit limit approved to you as a borrower, out of which you can use the money as per your need. Interest is payable only on the used funds. You must be thinking if there is any difference between a credit card and a credit line. Then yes! There are a few differences that make the line of credit a better option. Line of credit takes no maintenance charges or additional fees. Also, the rate of interest on this is comparatively lower. This is even a better option than a personal loan as this is always unsecured. So, even for a longer limit, you don’t have to pledge any collateral.
In any urgent need, a line of credit can work the best. Speaking specifically about salaried employees, managing within a fixed salary often is tough. Expenses are not always constant and added emergencies to it, can even be a worse situation for them. With a line of credit, a backup can be kept ready forever.
Advance Financial is a lender that can make this back up a smooth ride for salaried employees. Their rate of interest on the loan is relaxed. Also, repayment of the credit can be done conveniently. No penalty or additional fee is charged on this. If you are a salaried employee and need a loan, going for a line of credit could be the best way, and Advance Financial is the recommended lender.