- Payday loans might be an excellent way of paying an unexpected expense. But they also come with some disadvantages. Read on and discover the benefits and drawbacks.
Pros and Cons of Payday Loans
Payday loans are becoming a prevalent method to pay for unexpected costs, tide borrowers for a while, and make urgent payments. Despite being convenient, a short-term loan may not always mean you are making the right decision.
What are payday loans?
They are a means of a short-term loan meant to be repaid in less than a month or when a borrower receives his/her next salary. They are beneficial when it comes to paying bills and other unexpected payments that might come if your wages delay. This money will be deposited into the borrower’s bank account. The borrower will spend the cash as he/she pleases. The loan is repaid in the coming weeks instead of months or years with interest.
The pros of a payday loan
Expert Payday Loans come with several advantages when it comes to convenient and quick access they come with. They are swift. You apply for the loan online, and within minutes, the money is deposited in your bank account. This is great for people who face a tight situation and need to pay for something urgently.
You will also find a vast number of loan items that borrowers can access. Current FCA regulations give borrowers favorable protection. Those laws need that the interests of payday loans are capped under the law – this limits the total fee and interest to be paid.
The cons of a payday loan
One of the apparent disadvantages of a payday loan is that it can be costly to pay. You will end up paying more than you would if you had borrowed another loan.
The impact on your finances in the coming month is another disadvantage. Some loans give you a period of up to 3 months to repay your loan, while others will deduct the whole amount from your next salary. Such time constraints might be rigid on borrowers as budgeting other monthly bills, and paying loans can be tricky.
Another con of payday loans to some people is continuous payment authority (CPA). Most lenders who give such loans mostly request borrowers to produce a CPA before they approve the loan. What does this mean? The lender gets access to deduct payments from a personal bank account – whether it has cash available or not. This can cause extra bank fees that you had not budgeted for and may make the situation worse.
Is it okay to take a payday loan?
Your financial situation determines whether you need a payday loan. If it’s a few days to your next salary and you get notified of a pending bill – that you are aware will not affect you at an immense rate when repaying, a payday loan can be a reasonable thing to do. However, it would be best if you looked at the expense in the long run. You should always ensure you can afford any loan you are planning to take.
You can quickly locate several loan options that come with lower interest rates and give you a more extended period to repay the loan even if you don’t have a good credit record.
People having finance issues can find advice and help from firms like Step Change. The organization provides its services to help you solve your financial problem, offering advice on ways to be in control of your borrowing and how to budget your money well.
Always consider the following if you have to take a payday loan:
- Ensure you are only borrowing the needed amount. Although the amount a lender is offering seems appealing, don’t take it if you don’t need it. For instance, Fast Payday Loans can tempt most users with their maximum loan amount of up to $1000 even if they intended to borrow less.
- Do some research and find a product that works for you. Different lenders have different product features and cost charges on their loans. One can favor you than the other.
- Be very careful when choosing your lender. You can do so by scanning a lender’s website to ensure he or she adheres to the FCA regulations.