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Payday loans, advantages and disadvantages


Payday loans are becoming a common resource for emergency funds these days. If you are considering applying for one of these short term personal loans, educate yourself before you sign a contract. Here are the major advantages and disadvantages of payday loans to you as a borrower.

Advantages

  1. Payday loans are a fast source of cash in a financial emergency. If your car has broken down or you have to have a tooth filled – or you just need a little extra help meeting the rent payment this month – a payday loan can provide the money you need, often within a matter of hours.
  2. Payday loans do not require a credit report. If your credit has been damaged or you haven’t established a credit rating yet, your eligibility for a payday loan will not be affected.
  3. Payday loans may save you money. Covering your bills with a short term loan may allow you to avoid charges for things like bounced checks, bank overdrafts and credit card fees.
  4. Payday loans can protect your credit rating. When you take a payday loan to tide you over for a few days and help you meet your financial obligations, you can avoid a mark against your credit rating.
  5. Payday loans allow you to be independent. If you are young and just learning how to balance your budget, you may not always manage to have enough cash on hand to meet your expenses from one paycheck to the next. Using a payday loan means that you do not have to beg your family for money.

Disadvantages

  1. Payday loans are for a short period only. If you need a loan for several months or longer, a payday loan is not going to help you.
  2. Payday loans involve fees and interest payments. The charges associated with a payday loan are quite a bit higher than for a standard bank loan. And if you are unable to pay your loan in full by the contracted time, the fees may double.
  3. Payday loans require the borrower to be employed full time. If you are working part time or receiving unemployment benefits or social assistance, you will probably not be eligible for this type of loan.
  4. Payday loans also require you to have a current bank account. You may believe in dealing with cash only, but payday loan companies think differently.
  5. Payday loans are for relatively small amounts. Generally payday loans are issued for amounts of up to $1000. If you are looking for a larger sum, even if it’s only for a short time, you will most likely have to find another source of funds.
  6. Payday loans may be offered by a fraudulent source. Especially if you are applying for a payday loan online, it’s important to check out the company you plan to borrow from. Make sure that they are trustworthy. Some less trustworthy brokers may resell your information. This site we have done the hard work for you, only listing trusted direct lenders and the best brokers.
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