The Advantages and Disadvantages of Payday Loans | MaxLend Loans
If you are in dire financial straits and don’t have the luxury of borrowing money from family or friends, you may have considered applying for a loan. One of your emergency financing options is to use payday loans – and alternatives to payday loans. In order to make an informed decision when considering a payday loan, it’s important to know what you’re getting into. Below are some of the pros and cons of payday loans, as well as alternative payday loan options.
What is a payday loan?
Payday loans are unsecured cash advances for a small amount of money, often with high interest rates, a short-term repayment plan, and penalties if you miss the repayment date. This type of loan can be used as a cash advance for the days between paychecks from your job. While payday loans may be one of the easiest ways to get cash fast, this emergency financing option may not be the best choice.
Benefits of Payday Loans
1. They’re quick and easy
Payday loans are generally quick approval loans. Many cash lenders can provide payday loans within 24 hours of submitting the application; same-day financing may be possible in certain circumstances.
2. High Approval Rates
Major banks usually maintain credit reports, but payday loans are sometimes easier to obtain than loans through a bank.
3. Not guaranteed
Payday loans are unsecured cash advances, which means they aren’t secured by your personal assets and your lender can’t seize your assets if you default or don’t pay.
Disadvantages of Payday Loans
1. High interest rates
Because these loans are short term and unsecured, they come with higher interest rates.
2. Having to extend payments
Each time you extend or renew your loans of money, a payday lender charges additional fees, which increases your costs of borrowing money. One loan can lead to another, and then lead to another. You may have been able to repay your loan in two weeks, but postponing your loan may increase the time it takes to repay.
3. Fees and Penalties
As mentioned, some payday loans may come with penalties if the loan is not repaid by the due date. Unfortunately, repayment can be delayed or even missed because the total – principal and interest – must be repaid in full within a short period of time. Penalties can add up and borrowers can end up paying more than they originally expected when they agreed to borrow the money in the first place.