Despite the dangers and high interest rates of payday loans, they remain a hugely popular source of short-term income for consumers.
While payday loan companies tend to do more harm than good, there’s still a huge demand for their services (or else they would go out of business).
In fact the industry is worth billions of dollars and for every two Starbucks location, there is one payday loan retail outlet. These quick-fix financial products are often the only option for many people facing a financial hardship. Or at least that’s how it feels at the time.
Whether it’s to help with a small emergency or to keep the bank account afloat, a lot of people utilize payday loans. I’m curious, are payday loans and cash advances ever a good option? Let’s take a look at the pros and cons.
Quick and simple process. A payday loan is a quick, short-term loan to help cover any expenses till your next paycheck. You walk in, tell them how much you need and after exchanging paperwork, you walk out with your money. It’s a pretty quick, simple and painless process (until of course, it comes time to pay it back).
Complete privacy. Many payday loan employees will give you the money with no questions asked. You won’t have to answer any nosy questions or account for how you’ll spend the money. You will have complete privacy without many inquiries.
No credit check. In most cases, a credit check is not necessary in order to start the approval process. All you need is a bank statement, paycheck stub and a post-dated check to complete the transaction.
Fast approval and receipt of funds. If you come prepared with the necessary documents, you can often get approved and receive your funds, cash in hand, within 15-20 minutes. The approval process is much quicker than a traditional loan from a bank and you’ll receive funds almost instantly.
No collateral required. These loans are considered unsecured debt, meaning there’s no collateral required for you to borrow the money you need. The only guarantee on the loan, is your post-dated check which will be cashed after your next payday.
Less paperwork. Conventional loans from banks and credit unions can take several hours to complete and there is a lot of paperwork. But not with payday loans, there’s much less paperwork involved and you get your money faster.
Very convenient. Not only are physical stores conveniently located everywhere, you have access to payday loans online. The transactions are conducted in a safe and secure manure, and you don’t need to talk to an employee face to face.
Feels like the only option. Sometimes these types of products are the only source of quick cash for unforeseen circumstances, and using them may feel like your only option. When financial disasters occur and you don’t have access to other back up funds, you can feel trapped.
Not long-term financial solution. Borrowing money against future paychecks is not a long-term solution to your financial problems. If the loan isn’t repaid in full it can quickly lead to soaring debt and put you into a dangerous cycle.
Questionable contracts. When you’re in a financial bind, you will do almost anything to get the money you need, including signing questionable contracts. Borrowers are often forced to sign contracts stipulating terms that benefit the lender, instead of favoring the borrower.
Very expensive. Interest rates and fees on payday loans and cash advances are very expensive, sometimes even as high as 500% interest per year, or more. While the loans are simple, quick and easy to obtain, you will pay a high price for that convenience.
Often unethical. Like many collections agencies, payday lenders will often use forceful, unscrupulous and illegal means to collect on unpaid loans. This is money you rightfully owe them, and they will do whatever it takes to get it paid back.
The short-term benefits of payday loans may seem like a good idea in some cases, but the risks and long-term effects can be very dangerous.
All debt products and loans come with risks, pros and cons. So before taking out any loans or cash advances, you should educate yourself about them and beware of the dangers.
What do you think, are payday loans ever a good option?
Photo Credit: taberandrew