Payday Loans - The Pros and Cons of Payday Loans

With payday loans, people can get out of financial emergencies fairly quickly and without much hassle. These loans are generally a simple solution to the problem and their easy accessibility makes them particularly popular. However, it is a good idea to compare both the benefits and drawbacks of these financial products in order to make a well-informed decision.

Pros

Quick cash - Usually, borrowers who take out payday loans receive the money which they need into their checking account within 24 hours after their application. In most cases, there is same-day approval and the money is deposited into your account instantly or on the next day. Simply put, you get your money in a day while banks typically make you wait for days and sometimes weeks.

Easy approval - Applicants with bad credit and/or low credit score have much higher chances of approval when applying for payday loans compared to short-term loans offered by banks. This is because payday lenders rely on the fact that you have a fixed monthly income in the form of a salary. As long as you get paid, they will get their money back. Hence, they typically approve subprime borrowers quite easily.

Cons

Higher interest rates - Payday loans typically have fairly high interest rates compared to other financial products such as short-term personal loans. If you compare APRs (annual percentage rates of interest), you will clearly see the difference. The reality is that the high APR is actually not that scary given the fact that you will borrow the money for just a single month. Often, lenders present the actual amount of cash which you will have to pay back in addition to the principal and it is not particularly large. You just need to ensure that you will be able to repay the total sum.

Risk of getting into debt - The high interest rate is one of the major risk factors. If you find it difficult to repay the loan on your next payday, you will have the opportunity to extend it, but the amount which you will have to pay back will grow considerably and this can make the situation more difficult for you. Another issue is that many people use payday loans in cases of financial emergencies with longer term implications which are difficult to resolve just with the borrowed money.