Things to Know About Payday Loans in 2023
There are instances in life when people find themselves unable to meet their financial obligations. The rising cost of living has made it even harder for low-income earners. In some cases, finances required are small amounts that should be paid immediately. It, therefore, becomes prudent for people in such situations to consider taking an emergency/ short-term loan, such as a Payday loan, to assist in settling the obligation.
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What is a Payday loan?
It is a consumer credit in which small short-term unsecured loans are offered at a specific interest rate. It is mainly issued to solve an emergency situation as the borrower awaits his/ her next paycheck. These loans charge high-interest rates for immediate short-term credit. They are payable on the borrower’s next payday. The amount issued is based on a borrower’s income and credit profile.
Application for most Payday loans is made online by filling electronic forms, and money is issued almost immediately. Some companies, such as LoanPig.co.uk, assist borrowers in getting their applied payday loans within 24hours.
Requirements while applying for a payday loan.
- Age should be18 years and above.
- A government-issued identification document.
- Proof of a regular income.
- Active bank account.
Pros of a Payday loan
The process of application and getting them is hassle-free and unique. They are, therefore, excellent cash advance for anyone who can pay them back on time.
Unlike traditional long-term loans, which take a long time to access, these one are easily accessible. Actually, most lenders issue payday loans within 24 hours. This makes them popular as a borrower can apply for the loan in the morning and use the money for shopping in the evening.
They are unsecured, thus not pegged to the borrower’s personal property. This means, in case of default, the lender cannot seize the borrower’s private property. This type is suitable for young borrowers who have a job but have no personal properties that they can use as collateral.
The application process for most payday loans is done online; thus, the borrower can apply for it from anywhere, i.e., home or workplace. The online application saves the borrower from the trouble of having to book appointments with the loan officer. The electronic form is also easy to fill.
Payday loan saves the borrower from incurring unnecessary penalties that result from late payment since it is payable with the next paycheck.
No Credit Check
A credit score has been a setback to many borrowers with a low credit score. The fear of getting a poor credit rating has over time made many borrowers shy away from applying for loans. They provide a viable alternative to such borrowers as they don’t require a credit history.
No Limitations on use
Some traditional long-term loans dictate how money obtained on loan would be used. Loans such as those for a car can only be used to buy a car, a mortgage to buy a house. These conditions do not apply for a payday loan. The borrower has the freedom to put it into any use.
Higher Loan Amounts.
While credit limits availed to first-time borrowers is low, the amounts increase over time whenever a borrower pays back the borrowed amount in time. Thus the more a borrower takes a payday loan and settles back in the required timelines, the more his/ her limit increases.
Cons of a Payday Loan
A payday loan, like other short-term ones, charges high fees, which translates to high-interest rates. The borrowed amount also attracts extra fees for late loan repayment.
Repayment by Direct Debit.
While direct debit may be an advantage to the lender, ensuring that the loan amount is paid promptly and reducing to a great extent the rate of default, it is a disadvantage to the borrower as the amounts are recovered from their income before paying for the basic needs such as food and shelter.
Effect on credit rating
Although credit score may not prevent a borrower from accessing a Payday loan, failure to repay it promptly may adversely affect the borrower’s credit rating.
High Default Fees
Failure to pay the payday loan on the due date, results in the borrower being charged default fees, which could be relatively high. The costs are usually set high to discourage borrowers from defaulting and to penalize defaulters for missed payments.
Payday Lenders can sue the borrower.
Like other lenders, failure to pay a payday lender money owed for long enough can result in the lender taking the borrower to court in an effort to recover the money. A judgment may lead to imprisonment or facing other consequences.
Difficult to get out of
It is easy for fast loan (payday) borrowers to find themselves in financial distress such that they cannot meet their basic obligations without borrowing. A borrower may result in paying it and borrowing another one immediately to make ends meet. The repetitiveness of this may result in a chain that is difficult to get out of.
A payday loan is a safe way of solving financial emergencies. The cash applied for can be accessed within hours, making it an easy option to solve the financial crisis. The application can be made from anywhere provided the borrower has internet access since it is done online. Unlike the other long-term loans, the payday one has minimal requirements.
A borrower must, however, exercise caution when borrowing to avoid instances where the loan liabilities are more than one can handle. When borrowing, it is good to be keen to details and understand the terms and conditions of the lender before signing up for a payday loan.
It is always prudent to honor one’s liabilities. Borrowers should always ensure repayment of their loans promptly to avoid paying hefty penalty fees, having low credit rating, and facing court cases, which are usually expensive and time-consuming. Everyone should borrow what they can comfortably repay.