Should You Take Out a Payday Loan? Here are the Pros & Cons – Our GuideMar 12, 2020
When it comes to our finances, we’ve all had our bad days. Sometimes, bills start piling up way faster than we expect them to. Other times, there are emergencies that we have to deal with, such as medical expenses and home repairs. If your paycheck is still weeks away, you may be tempted to take a payday loan.
Payday loans, also known as paycheck loans, offer a quick solution to your financial problems. Anyone of legal age can apply whether or not they have a good credit record. Often, you can apply online and the process is as easy as filling out a form. The approval process takes less than a day, and you can have the funds soon after you are approved. You can borrow any amount depending on your income, but you should pay it back—including the interest—before your next paycheck. This means you have to come up with the money within two weeks, at most.
While this sounds fair and reasonable on paper, some critics argue that these short-term loans target minority populations to lure them into lengthy and bigger debts. The truth is that there are advantages and disadvantages to taking out payday loans. In this post, we break these factors down so you can decide if they’re a viable option for your situation.
Pro: Easy Access
The most significant advantage of payday loans is its convenience. As stated above, anyone can apply online and get their cash in a day. Some lenders are even available 24 hours a day, 7 days a week!
Traditional lenders require a whole list of requirements, such as your Social Security number, proof of income, and collaterals. Payday loans skip all those. The basic requirements are only to be of legal age and have a regular source of income.
Pro: No Credit Checks
Payday lenders don’t require you to have a good credit standing. They will not check your credit history, except in some cases when they need to run a “soft check.” Even so, this will not affect your credit score. This is perfect for people who have poor credit records but need some cash before their next salary.
Pro: Unsecured Loans
Payday loans are considered as unsecured loans. This means that they are not tied to any of your assets. Should you default, the lender cannot seize your property as collateral. However, lenders have other means to protect their interests. They may have access to your bank account or pursue legal actions over your outstanding balances.
Con: High-interest Rates
Payday loans are often called “high-risk” loans because they have high-interest rates. Some lenders require borrowers to pay up to 30 percent of your principal while others charge fees during the repayment process.
Con: Short Payment Terms
Aside from their expensive repayment scheme, payday loans are also short-term loans. Borrowers need to pay back the amount in full within 14 days. If they fail to meet these terms, they’ll need to pay additional fees or borrow again.
Con: Roll-overs Lead to a Debt Cycle
Under the pressures and deadlines, most borrowers are forced into an unfortunate debt cycle. Consider this scenario: if you take a R1,000 cash advance, you’ll need to pay this out of your next paycheck of, say, R1,600. If you add the R300 interest, This will leave you with only R300 liquid income. If your financial situation has not improved during this time, you may need to take out another loan.
When you find yourself needing a little help to make ends meet, payday loans can be just what you need. They’re fast, convenient, and secure. However, you need to plan your finances wisely as they could also lead to several financial problems in the future. Knowing their pros and cons should help you make the right choice for your future.
If you’re looking for payday loans in South Africa, get in touch with us to see how we can help.