Monthly Archives: November 2009

Advantages and disadvantages of Payday loans

Payday loans

Payday loans

It often gets hard to meet the unexpected daily expenses, medical bills, car repair bill when one is in the middle of a cash crunch. In such situations, many people consider paying these expenses by their credit cards or borrow money from their friends or relatives. Those who don’t have such options tend to ask themselves how to get the best online payday loans. Typically, payday loans act as an alternative and, sometimes, a last resort.

What is a payday loan? The payday loan or a cash advance loan is a short term, low amount, instant loan that can be transferred to your account on the same day. These loans often come with a very high interest rate and have to be paid back by next payday to avoid the rolling fees. Anyone can avail a payday loan starting from a hundred to a couple of thousand dollars.

How do you get a payday loan? There are more than ten thousand outlets in the US that advance payday loans. Anyone can apply for this loan very easily on the internet or on the phone. You will have to give your name, phone number, address, bank details and proof of employment and your payday loan will be electronically transferred to your bank account within 24 hours. Nowadays, there are many companies who are transferring payday loans within an hour to stay in the competition. Anyone with bad credit can also apply for these loans. Most companies will ask you to deposit a post dated check for the total amount of the loan principal and fees and it will be cashed on your next payday. The amount can be withdrawn from your checking account on your next payday.

While payday loans can solve a lot of temporary financial problems, it comes with a number of catches, due to which these types of loans are quite controversial. Consider taking these types of loans when all other options have failed and make sure that you pay back the full amount by your next payday. It has certain advantages and disadvantages discussed below.

Advantages of Payday Loans:

  • Payday loans are the fastest and most easily approved loans in today’s time
  • Payday loans can be availed online, over the phone or in person.
  • Payday loan companies do not do credit check while processing your payday loan application form. You must have a proof of employment or last month’s pay slip, apart from giving your bank account information.
  • Payday loan application forms are processed within 24 hours. There are some companies who can transfer the funds within a couple of hours to stay in the competition.

Disadvantages of Payday Loans:

  • Payday loans are extremely costly. There is a fee ranging from $15-$25 for every hundred dollars lent over a period of 14 days. So if you borrow $1000, you end up paying $250 towards the fees and the principal amount within half a month timeframe.
  • If you extend the repayment plan or are unable to pay back within the due date, payday loans become costlier. You end up paying half of the principal amount as interests, along with the fees and the principal amount, if the loan is extended for another 14 days. In case you go for multiple extensions, there are chances that you will fall under a huge debt trap.
  • Payday loan laws are regulated the attorney general’s office of the individual state. Some states allow a maximum of $400-500 only, but there are a few states who can lend you up to a couple of thousand dollars.