Is Payday loan the right choice for you

Payday loans are rapidly gaining popularity these days. People who encounter unforeseen financial emergencies often find Payday loans as their savior. These loans can indeed be helpful when you don’t have the necessary funds but have to make a payment right away. However, payday loans have been criticized by many financial experts and organizations who opine that these loans take advantage of cash strapped consumers. They argue it only pushes people towards scary things like payday loan settlement, consolidation and sometimes even bankruptcy. So, should you consider a payday loan? Let’ discuss.

What is a Payday loan

Payday loan is a short term loan which is supposed to cover the borrower’s expenses until the next payday. This kind of loan is more common in the US but it is spreading rapidly in other countries as well. The range of Payday loan usually varies from $250-$1000.

What are the benefits of Payday loan

The biggest advantage of Payday loan is that it gives you immediate access to cash when you need it the most. Have you ever stumbled upon some medical emergency or big car repair bill? If yes, then you would know that it is quite a crisis situation if you don’t maintain a good emergency fund. At times like this, Payday loan can come to your rescue by providing you the cash within 24 hours.

The whole process of getting the loan is hassle free. You need to submit only some basic documents like your bank account number, address proof etc. The eligibility criteria are simple enough. You just need to have a savings account and a permanent address. Even your credit history is not taken into account.

Since credit check is not necessary here, a person with bad credit history is eligible for Payday loan. This means even people who have filed bankruptcy or settled their debts are eligible for payday loan. Payday loan is also of great help to people who have “maxed out” their credit card or don’t have any credit card at all.

Payday loans are secure in the sense that your financial information is not shared with others. So your privacy is respected here.

What are the disadvantages of Payday loan

Payday loans can sink you in debt with their extremely high interest rate if you are not careful enough. The interest charged can be as high as 25% of what you borrowed. A loan of $500 will typically cost you $125 in interest. Some people don’t think of the interest when they take a payday loan and understand too late that they cannot afford it.

 The cost of Payday loan increases when the loans are rolled over. Many borrowers do not evaluate their income and do not check the pay schedules either. Consequently, they often fail to pay back the loan in time. Next, they make a partial payment and extend the loan. This is how the loans are rolled over adding more fees to your principal.  Sometimes, people default on their payday loan and take another loan to pay-off the previous one. This continues and they enter

People tend to develop a psychological dependence on payday loans. These loans give you the feeling that you have enough cash to buy whatever you want. If you don’t get rid of this illusion then you could be knee deep in debt sooner than you imagine.

The loan amount can be really small. This might not fulfill your requirements. So if you need a fat sum then better look elsewhere.

Whether you like them or not, payday loans are hard to ignore. They are possibly a necessary evil. Nonetheless, Payday loan should be your last resort. It can push you towards payday loan consolidation or settlement and get you entangled in an intricate web of debt.   

David Brown is a content writer with Oak view law group. He writes on a variety of finance related topics with a strong focus on debt.