Payday loans are short-term loans that borrowers generally obtain to cover small expenses or emergencies. Payday lenders typically don’t conduct a hard credit check, so you can get approved for a loan even with bad credit. Furthermore, you can receive the funds in your bank account as soon as the next business day, which makes this borrowing money option convenient for paying for unforeseen expenses.
How Do Payday Loans Work?
Payday loans online allow people to get extra cash and repay it with an interest rate by their next paycheck. You don’t need an excellent credit score to get approved, as lenders focus on your creditworthiness and your ability to return the debt. It means that your on-time repayment will not be reported to the main credit bureaus (Equifax, Experian, and TransUnion). Therefore, payday loans will not help you build your credit.
When to Apply for a Payday Loan?
Payday loans are an excellent way to cover small expenses like the following:
- Utilities;
- Medical bills;
- Rent;
- Vacation costs;
- Car or home repairs;
- Unforeseen expenses.
Pros of Payday Loans
Applying for a payday loan may often be an excellent solution to your financial problems. Take a look at the main advantages of this borrowing option to make a decision.
No Hard Credit Check
Payday lenders don’t need a hard credit inquiry to give you funds. Instead, they perform a soft credit check that does not affect your credit score. The loan providers pay attention to your income and how likely you are to repay the debt.
Fast Cash
Most lenders approve your loan request in minutes and transfer the money on the same day. Therefore, you can have the cash in your bank account on the same or the next business day.
Unsecured Loan
Unlike many installment loans, payday loans are considered unsecured, as they don’t require collateral. Therefore, you will not lose your property or car if you fail to repay the debt on time.
Bad Credit Allowed
Payday loans are an excellent option for borrowers with bad credit, allowing everyone to get extra cash. Your credit score is not the most important factor in this type of loan.
Cons of Payday Loans
While payday loans may often be a convenient option for borrowers, they also have several drawbacks:
High-Interest Rates
A payday loan is considered one of the most expensive types of loans. While interest rates for personal loans are around 2,49%, for payday loans they reach a 400% annual percentage rate (APR).
Getting into a Debt Cycle
As it is often complicated to repay a payday loan, people start obtaining more loans to repay the previous one. It results in entering a debt cycle.