Payday loans can help borrowers manage emergency situations without arranging a loan through traditional banks or financial institutions. Because payday loans and cash advances are intended for a short period only, failure to pay the debt as agreed can be costly. Before borrowing from a short term lender, truthfully evaluate how much of the next paycheck can be used to settle the debt. Exhaust other personal resources, including family or friends, before seeking a short term loan or cash advance. When approved for a payday loan, know that the costs associated with this form of financing are higher than traditional sources. Consider the pros and cons of payday loans:
Pros: why payday loans are a good way to borrow
Many people in today’s economy experience temporary financial shortfalls between paychecks. Underemployment, sometimes working several part-time jobs to make up for a better-paying full-time job, can make balancing incoming and outgoing funds a challenge for individuals or families. When a true financial emergency happens, payday loans or cash advances can save the day. Sometimes, just $100 until payday helps the family buy groceries or attend to a sick relative.
Payday loans and short term cash advances offer these advantages:
–online loan application: many payday lenders offer a convenient, streamlined application. Ask the lender about submitting an online application or print/fax an application to the lender’s location
–pool of lenders or fixed lender capital base
–no credit check to obtain approval: the borrower’s job and monthly income are used to confirm or deny the loan application
–fast availability: many lenders make funds available in hours or within one business day
–debit card or direct deposit: borrowers can easily access funds for any purpose
Cons: why payday loans are not a good way to borrow
–higher costs associated (interest rate, APR, or fees) with borrowing money over a short period, loan extensions repayment dates may add new charges to the loan
–over-extended, over-burdened borrowers may not have the resources to pay short term payday loans or cash advances according to the lender’s disclosure and loan agreements
–lack of financial education: some borrowers use a new payday loan to repay an existing one
–consumer’s poor credit history prevents him or her from accessing cheaper lines of credit
Payday loans or short term cash advances can benefit borrowers when he or she understands the loan terms and conditions. By repaying the loan on time, the borrower establishes a good financial resources for the future.
But he or she must communicate with the lender if repayment extension is necessary. Defaulting on a payday loan or cash advance will severely impact the borrower’s ability to borrow when another cash crunch occurs. A payday loan can add to the already financially stressed customer without careful consideration of these factors.