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Advantages and Disadvantages of Payday Loans

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Advantages of Payday Loans

Payday Loans are one of the quickest forms of borrowing these days. Normally it takes less that a day for the loan amount to get disbursed in the borrower’s personal account after submitting an online application of loan. This feature alone makes Payday loans very attractive when the regular loans are difficult to get or may take time to get processed.
As compared to a regular loan it is easier to get qualified for a payday loan as
borrower’s income is used as a benchmark to calculate the loan amount, which makes it easier to pay loans back when they become due.
Some states and governments have regulated payday loan industry by not letting the lender charge above a certain APR (Annual Percentage Rate) in fees and interest rates. To safeguard the borrower they also restrict the companies to give or sell the borrower’s personal information to others which further secure the borrower.

Disadvantages of Payday Loans

Despite of the convenience of borrowing which makes payday loan a viable option the borrower should consider the consequences discussed below before using this short term loan facility often. For more information, you can click here to get a better idea.  

The annual interest charged for pay day loans exceeds 1000% or even more. Most of the borrowers don’t notice this high cost straight away because the repayment of loan is not due in a year but a shorter period spanning on weeks. For instance let’s consider a payday loan that charges the borrower $25 against a loan of $100 to be paid in a month time. If the Loan is rolled over every month for 12 months the borrower will end up paying $300 only in interest which is three times the original principal amount of $100. On top of this interest charge is only one part of the total cost incurred by the borrower who also has to pay service fee on each transaction.
It is pertinent to mention here that payday loan is supposed to be paid on a specific date and if failed to repay in full or not on the due date there is a risk of getting stuck in a bad debt cycle. The payday companies also impose penalties and late payment charges.

One should consider the above pros and cons of payday loans before making a financial decision. Payday loans are suitable for one-time requirement when other regular loans are not preferable because of the processing time and limitation put on the use of the loan. However; payday loan might be convenient when in need of quick and easy money but they are very expensive despite there rates being capped by some states.  

 

Posted Oct 19, 2015 at 1:18am

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