Getting A Short Term Loan: Exploring The Pros And Cons Of Payday Loans
When your vehicle or home is in need of unexpected repairs, waiting for your next paycheck to arrive in order to pay for these repairs may simply be out of the question. Thankfully, there are several short term loan options available that can help you cover these unexpected costs immediately. One of these loan options is known as a payday loan or cash advance. Below you will learn more about the pros and cons that come along with choosing this type of short term loan so that you can decide for yourself whether or not a payday loan is right for you.
There are many benefits that come along with the use of a payday loan. These benefits include:
- Minimal Income Required - Most payday lenders will only require you to make a minimal amount of money each month. This allows individuals who are working minimum wage or part time jobs to qualify for this type of short term loan.
- No Credit Check Needed - Your paycheck is considered your credit when applying for a payday loan. Consequently, there is no need to submit to a credit check or worry about being denied due to past credit mistakes.
- No Collateral Required - Many short term loans, such as auto title loans and pawnshop loans will require you to provide collateral in order to secure the loan. This is not the case with payday loans.
There are also some disadvantages associated with the use of payday loans. These disadvantages include:
- Bank Account Required - Payday lenders will typically require that you grant them permission to automatically withdraw your payment from your bank account on your next payday. This requirement prohibits individuals without an active checking account from taking advantage of payday loans.
- Limited Value - The amount of your loan will be based off how much you make in an average pay period. Consequently, the value of these loans will often be quite limited and may not be sufficient for paying off large bills.
- High Fees For Nonpayment - While payday loans are typically issued with a relatively small financing fee attached to them, these fees can quickly grow if you fail to repay your loan on time. For instance, in addition to paying a higher interest rate on the loan, you may also be required to cover overdraft or insufficient funds charges from your bank each time the lender attempts to withdraw your loan payment from your account.
The Bottom Line
There are many things that you will need to consider when deciding whether or not to take out a payday loan. However, the most important factor for you to consider is your ability to repay this loan on time. This is because many of the disadvantages which accompany these short term loans will only become relevant if you fail to pay on time.