May 11, 2017

Do you earn just enough to be able to barely cover your expenses?

Living your life paycheck to paycheck leaves little or no room for savings. Your entire salary is consumed by bills, rent, and groceries. Financial emergencies, can be a nightmare. Problems as seemingly simple as your car breaking down can cause you deep trouble.

What to do then? A quick loan cannot hurt, can it? Why not take out a payday loan? Payday loans are one of the more controversial forms of lending. The debate on their advantages and disadvantages is still ongoing and will continue to do so forever. Here, we present a summary of the pros and cons to help you decide whether or not you should get a payday loan for next financial emergency.

But, before that, let’s answer an important question.

What are payday loans?

Payday loans are a form of short-term loans which, by their very definition, are due on your next payday. A typical payday loan generally ranges around $500 or less. You can get a payday loan by writing the lender a check for a later date. You can choose to make a lump sum payment or go for installments. It depends on the terms lenders offer. There are two distinctive features of payday loans. First, your credit rating doesn’t matter. You can find plenty of lenders willing to offer you a short-term payday loan even if you have  bad credit. Second, and much more importantly, you need to remember that the interest rate on a payday loan is extremely high compared to other forms of lending. For every $100 you borrow, you pay around $10 to $30 in interest. This translates into an Annual Percentage Rate (APR) of around 400 percent. For comparison, the APR on your credit card is around 12 to 30 percent.

Advantages of payday loans

The biggest advantage of payday loan, and probably the reason why most people go for it, is that it’s a quick fix for your financial emergency. You can receive the cash instantly in your bank account. So you can get your car fixed without hesitation.

Another attractive feature of the payday loans is the convenience. You can easily apply online for the loan at any time of the day. Some lenders don’t even require a clean credit rating. They can just take some of your basic details and send you the loan without any hassle.

Disadvantages of payday loans

We have already discussed the extremely high interest associated with payday loans. And this is the one reason which should turn off most borrowers from considering this option. A payday loan can potentially be fine if you have a rare financial emergency. But if you already have issues with debts and paying back existing loans, you better stay away from payday loans like the plague.

Apart from the unbelievably high interest rates, you may also be hit by additional hidden fees and other charges. If you still want to take out the loan make sure to ask the lender about additional fees and don’t forget to thoroughly read the terms and conditions that may apply.

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