Payday Loans – Pros and Cons

Payday loans are a very common type of loan which is taken by those who have jobs which include a basic salary. If there is a surprise expense which comes up at the end of the month and you immediately need money then you can go in for a payday loan. It is an amount which you borrow (sometimes called a cash advance) and repay when you get the salary.

A payday loan is very effective as most of the reasons you opt for it will be very erratic. A bank will not approve a loan for getting your car’s radiator fixed, for instance. Also, the amount you require is too small to actually apply for a personal loan and it is not something you cannot afford, it is just that you don’t have the money available at the moment. It is your best option in the event that you require the money to be delivered to you very quickly. You simply file for the loan and it comes directly to your bank account. If for some reason your credit card acts up then going for a payday loan will be extremely helpful. Most importantly, a payday loan only attaches the indebted tag on you for a short duration of time.

One major advantage is that the eligibility criterion for a payday loan is not as strict. The credit history is never a problem and a person of legal age with a monthly income can apply for the loan with almost a guaranteed positive response.

On the other hand, the interest rates charged on such loans in extremely high. Since the amount borrowed is reasonably large, even a small rate of interest charged, coupled with a small time period can make the interest surcharged quite high. Most commonly, the interest rate is about 10% to about 30%. This makes it imperative that you pay back the loan well on time. More so, in the event that you are unable to pay back the loan on time, the interest doubles turning your loan seem like a fortune compared to what you thought it was while you borrowed it. After a period of thirty days, the whole experience turns into a nightmare.

Some people with a bad debt to income ratio consider payday loans as their only option. They are strictly advised to do so to prevent falling deeper and deeper into financial difficulties.

A Payday loan is advantageous in some cases while it may turn out to be quite the opposite in other cases. If your loan requirement exceeds about half of your salary, you should consider taking a personal loan instead.