Something that many people are currently looking into is payday
loans. These are short term loans that offer quick money in an emergency. They
are considered to be the perfect option for those who need to borrow a small amount
of money quickly, but are they really the best option? There are pros and cons
to opting for cash loans and here are just some of them.
No Credit Checks
The biggest benefit of these short term borrowing options is the
fact that there are no credit checks involved. The payday loan lenders are not
as interested in an individual’s previous financial situation as they are their
current financial situation. To avoid the risks of lending, the payday loan
companies set requirements that each borrower will need to meet.
Most of these requirements surround employment and income and each
company is different. Some organizations will accept someone who is
self-employed and earning the bare minimum to get by; others will require that
an individual earns in the thousands each month and is permanently employed in
a full time role. These requirements are clear before applying and will need to
be checked beforehand to avoid disappointment.
Help or Hinder the Credit
Rating
A pro and a con is that payday loans do affect the credit rating.
While there are no checks during the application, once a loan has been approved
and accepted, it will be placed on the credit history. This is something that
all lenders are able to see. As long as the individual makes the full payment
at the end of the term, or arranges another loan and follows the conditions set
by the lender, the affect on the credit rating will be good. Those who leave
the loan and do not pay the money back will find that there is a negative
effect on the credit rating.
High Interest Rates
When anybody looks at any form of borrowing, they will want to know
what the APR is. This is the annual amount of interest that is added onto the
amount that is being borrowed. The APR on payday loans is extremely high – between
1000% and 4000% depending on the payday loan company. This is something to bear
in mind.
This APR seems a little ridiculous, as it means opting to go over a
credit card limit or into an unapproved overdraft would cost less. The payday
loan lenders understand this and instead will have a set payment for the first
month. This is usually a small percentage of the total loan taken, usually
around 30%. It is smaller than fees for going over the credit limit or into an
unapproved overdraft. However, if the loan is not paid off at the end of the
term, the APR is then included and it could see someone borrowing a small
amount end up owing in the thousands!
Comments
Post a Comment