Payday loans, as the name suggests, are a type of funding source paid back on your next payday. The term of these loans is just 14 days; however, in some cases, it can be up to a month. These are short-term loans designed to aim at borrowers who need money during emergencies.
Although these loans aim at both good credit and bad credit borrowers, a survey has revealed that 30% of good credit borrowers have never used payday loans to fund emergencies. Over time these loans have become popular among bad credit borrowers.
You just have to let a lender know how small amount you need, and they will simply transfer money to your bank account. Most of the time, these are no credit check loans. Since no hard inquiries are made, you do not have to fear losing your credit score.
These loans have become very notorious because they are considered to be an attempt by lenders to trap subprime borrowers to make money. The fact is that borrowers do not do proper research and borrow more than their affordability. This results in rolling over the loan, and eventually, you find yourself in a debt trap.
When taking out payday loans makes good sense
You may think that payday loans are bad and lenders offer these loans to make a lot of profits, but the fact is that you apply for these loans in the wrong circumstances. Undoubtedly, these loans are quite expensive because of your bad credit rating and a lot of risks involved.
The APR of these loans could be between 361% and 525%, depending on the lender. It will be a bit expensive even if you choose the most affordable deal. Here are the reasons why applying for these loans sometimes makes good sense.
You can get rid of them quickly
If you have come across an emergency – for instance, your car needs a repair or your laptop has conked out – you will need an instant loan. You may think of other small loans, but they may involve a hard credit search. Further, the repayment term is dependent on the borrowing amount.
The payday loans with no brokers for bad credit people are more convenient than any other types of emergency loans. You will likely get funds faster because no hard inquiries are to be made. A couple of lenders run a soft credit check, but it takes a few minutes and does not pull your credit score.
You will be required to pay back the entire money on the next payday. If you pay back the whole of the funds, you are free from debt. You do not need to worry about any debt obligations. No other loan is processed as fast as payday loans. You need funds at the time of emergency at once, so you cannot afford hard inquiries, paperwork, and other related formalities.
You do not have a fear of losing collateral
Payday loans are unsecured, which means you do not have to secure the money against a car, house or a valuable asset. Since you do not have to put down collateral, you do not need to worry about losing your valuable asset in case of a default. However, it does not indicate that you can escape your obligation. The interest rate will keep accruing unless you settle your dues.
Some financial companies use the marketing philosophy “buy it today and pay it in the future” to attract borrowers. You may be tempted to borrow money when you need it, even in non-emergency cases, but such credit card deals can be very expensive.
This is because if you do not pay back the whole money on the due date when the bill is generated, you will face more financial complications. However, payday loans seem to be way more convenient. You will get funds quickly and pay them back in a lump sum, and then you are completely free from it. You get money when you need it and pay back the whole money in a lump sum.
These loans are simple
Payday loans are simpler than other types of loans. Most of the loans are approved after knowing the reason for borrowing. This trend applies not only to long-term loans and business loans but also to short-term bad credit loans.
If your purpose of borrowing does not justify the policy of the lender, they will straightaway turn you down, but this sort of problem does not exist with payday loans. You can take out these loans for any kind of service.
A lender will not ask you the reason for borrowing funds. You simply have to submit the details regarding your borrowing needs, and the lender will quickly go through your application to decide if you can repay it on time, and then the funds will be credited to the nominated account.
The loans are flexible
Payday loans are flexible in nature. While other loans require you to pay down monthly instalments, payday loans can be paid in weekly instalments or in a lump sum, depending on the lender. You can even ask for an extension if you have doubts about repaying the debt, and this will prevent you from losing your credit score.
The bottom line
Though these loans come with a few benefits, it is recommended to borrow money based on your affordability. If you do not repay the debt on time, the lender will start chasing you, and if you do not turn to their messages, they will seek help from a debt collection agency. Your case can be sent to the court, and then a CCJ will be issued against you.
These loans are expensive and have been designed to fund only emergencies. You should apply for these loans only when you have an emergency, not for regular expenses. If you keep your affordability in mind, you will not fall into a debt trap. You need to understand if it is the right time to borrow money.
Lisa Ann has developed a well-experienced professional career. From managing the staff of more than 50+ loan experts at Fastmoneyfinance to boosting the delivery of various loan offers, she has acquired many challenging roles to come out with the best results for the company. Lisa Ann is a Senior Content Author and the Chief Financial Advisor at Fastmoneyfinance. To back her massive experience in the UK’s financial industry, she has the postgraduate degree and diploma in Business and Finance.