Even with a steady job and salary, saving money can still be difficult. Have you ever questioned why that was? As people gradually accumulate more and more debt, it is plausible to find that each pay cheque that is cashed only covers interest and not even the principle. Continue reading…
What Are Short Term Loans?
Short-term loans or payday loans are loans that give people money at high interest rates for short periods of time. The money is secured by a guarantee of employment, and the money is supposed to be paid back upon the payment of your next pay cheque.
They are much talked about these days. Some people think they’re a valuable lifeline and others believe that they’re exploitative. So, what are the pros and cons?
Instant Access to Money
Payday loans allow you to get access to money quickly with little fuss. Usually, when you borrow money from a lender, you’re expected to jump through a hundred hoops before you get your money. But with payday loans, you get your money as soon as the application has been processed.
That’s why it’s so appealing for people who need money quickly. From time to time, we all find ourselves in situations where we need instant cash. It can be very stressful when you are in a situation like this. It can seem like you have nowhere else to turn, so payday loans can be valuable when people are desperate.
Easy to Apply
It’s in the interests of the customer and the lender to make the borrowing process as easy and quick as possible. Payday lenders realise this, it’s also great for customers who don’t have the time to spend on waiting for a lender to complete the application process with you. Most payday loan applications can be done in less than an hour online from the comfort of your own home.
As soon as the application as has been processed, you’ll get a reply telling you whether you qualified for the loan or not. If you find a payday loans direct lender that is verified and trusted, you won’t need to worry about the process being too easy. Some people think that because the process is so easy there must be a catch, but that’s not necessarily the case.
Most People Are Successful
Not many people get rejected by payday loan lenders. This is largely because the loan is secured against your next work payment, so most people are able to repay the debt as soon as they get paid. So, lenders have less to worry about in terms of getting their money back, giving them more flexibility and confidence in lending.
No matter what your situation or borrowing history is, as long as you have a regular wage, you should have your application approved. This breaks down a lot of barriers for people who would most likely be rejected by mainstreams banks and lenders if they tried to borrow from them instead.
No Need for Good Credit
Some lenders will only give loans to people who have a good credit rating, but this is something that’s not so important when you’re looking for a payday loan. Most lenders will still probably do a credit check on you, but it won’t be taken as a major setback if you do have a bad credit history. Payday lenders are more concerned with other things like your current employment situation.
Some payday lenders offer specific loans to people with particularly bad credit ratings. These are called bad credit loans and offer an extra layer of protection for the lender. So, this is an option if your credit score is very bad, but there’s usually a price to pay in the way of higher interest rates and other fees.
High Interest Rates
Because payday loans are short-term, the interest rates have to be kept very high so that the lenders can make any money from them. The loans are usually relatively small too, pushing the interest rates up even higher. This is something that ordinary people need to be very careful about. Never take out a payday loan until you fully understand the interest rates and the repayment schedule.
Some lenders will charge up to 40% interest rates. Those kinds of rates will mean you pay back a lot more than you borrow. This is why you should only take out a payday loans once you know what you’re getting into and are confident that you will be able to pay back the loan in full and meet the deadlines.
Late Payment Fees
One of the big dangers of payday loans is the consequences of missing payment deadlines. It’s not just the interest that piles up over time either; there are also the late payment fees to think about. For every payment you miss, the lender will add a little extra money onto what you owe to them in the form of late fees. The late fees might not be very large, but these fees do add up over time.
People often don’t think about the consequences of these late payment fees. They realise that the interest rates are quite high, but once you combine the late fees with the interest rates, you could have a recipe for disaster. Do your calculations and work out how much you will have to repay if the worst happens before taking out the loan.
All the Power is with the Lender
As the previous 2 points have pointed towards the fact that the lender holds all the power in this lending relationship. There is very little the borrower can do once they get themselves into trouble. Whereas the lender can keep piling on the late fees as the interest rate keeps bringing up the money owed too.
The lenders can even seize your property if the debt piles up and there’s no chance of you paying the money owed back to the lender. This is not a pleasant experience, but it is a reality, and you need to be fully aware of this risk before making your decision.
Payday loans are very good options in certain circumstances. For example, if you need money and know that you have income coming your way in a couple of weeks, a payday loan can tide you over.
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