In Kenya, about 80% of the population claims that their income is insufficient; in the US, 78% of Americans depend on their salary, and in Europe, almost 95 million people are at risk of poverty. With such sad statistics, it is not surprising that many people apply for short-term payday loans.
All of us may have situations where we need money urgently. A low salary often leads to constant financial difficulties, and in extreme cases of force majeure, you may need a quick loan, especially if you can’t get a loan from the bank.
However, these short-term loans are only worth taking out if you are confident that you can repay the debt on time and not be trapped in constant over-lending.
This article will consider when it is logical to get payday loans, their pros and cons, and how they affect credit history.
What is “Money Until Payday”?
Payday loans are small, short-term loans designed to cover urgent expenses. They are typically issued for up to one month and up to $1,000, and interest rates can reach triple digits.
“The main purpose of payday loans,” explains Brandee Doyle, a financial expert at Tremplo County Loans, “is to help the borrower make it to their next paycheck without relying on friends, family, or banks for credit.
These loans are designed to cover urgent expenses, and their main advantage is that they are accessible even for those with less-than-perfect credit histories.”
To take out a payday loan, you need to fulfill a few simple conditions.
First, you must be an adult citizen or legal resident and have a stable income at the time of application. You’ll also need an active bank account or mobile wallet (such as M-Pesa) to receive the money.
Some lenders may check your income and debt levels to make sure you can repay the loan on time. Then, the day after your salary is received, the loan amount and fees are debited.
This is surprising for borrowers accustomed to making regular payments over a while.
Pros of Payday Loans
Payday loans have many significant advantages, which is why they are so popular:
Convenience and Speed of Processing
Online application for a payday loan takes just a few minutes and is very convenient for those needing money fast. The application is not complex and contains the minimum quantity of documents needed.
Approval is instantaneous, and the money is delivered on the same day or within 24 hours, which is especially important when every minute counts.
In addition, the availability of such services online makes them as convenient as possible for users, regardless of their location.
Availability
Banks do not give loans to people who have a bad credit history or are not officially working. But, such indicators are not an obstacle to loan issuing according to the rules of payday lenders because they are more loyal to their clients.
No Large Number of Documents Required
To receive money before payday, you are required to provide an ID and any proof of income.
No Collateral Requirements
Lenders offering payday loans can’t seize any of your property in case of repayment failure. Lenders can refer the case to the court or a collection agency for non-payment.
Easy Repayment Terms
Payday loans come with clear-cut and straightforward repayment conditions, usually connected to your next payday date. This helps borrowers plan better and avoid confusion over when and how much they need to repay.
No Impact on Credit Score
Typically, applying for a payday loan will not affect your credit score. Most payday lenders do not check credit scores. This means that you will still have access to the money you need if you have a poor or no credit history. And your credit score will not drop a few notches during a soft check.
Quick Access to Cash for Emergencies
Payday loans work perfectly for urgent needs, such as medical bills, car fixing, and other emergencies. The fast time for their processing and approvals ensures you instantly have the required funds without waiting for days or weeks, thus solving emergency financial problems.
Pitfalls: What to Look Out For?
While payday loans may seem like a quick and easy solution, their seeming ease hides serious disadvantages that can turn temporary financial help into a debt hole:
High Cost
Due to the lack of strict credit checks and short repayment terms, lenders are forced to set very high interest rates. As a result, an overpayment can reach 50% of the loan amount, which is expensive.
Penalties for Delinquency
If you don’t meet the deadline, additional penalties or interest are assessed for each day you are late, exponentially increasing your owe.
Negative Impact on Credit History
If the loan is not repaid on time, the debt is sent to debt collectors, and information about it is sent to the credit bureaus. This can worsen your credit reputation and create problems with future loans.
Risk of Debt Dependency
While these loans may temporarily solve the money shortage problem, regular use can lead to permanent financial dependence and accumulated debts that will be difficult to repay.
What Are the Alternatives to Payday Loans?
There may be other, sometimes more favorable, ways to borrow money. For example, some banks issue credit cards with a small limit and a grace period when no interest is charged.
Another option is to go to a pawnshop: leave a valuable but not necessary thing as collateral and get a short-term loan. Of course, if you fail to return the money, the pawnshop will sell your property to cover the debt.
If you have an urgent need, you can always ask friends or relatives for help—this is often the safest and clearest option.
How to Safely Take a Payday Loan?
If you take out an online loan, be careful and keep your safety in mind. Here are some tips to help you make the right choice:
Understand the Terms and Conditions of the Loan
Don’t settle for the first offer that comes along. Spend time studying different options, comparing terms and conditions, and making sure that the chosen company has all the necessary licenses. It is also useful to read customer reviews to avoid scammers and unscrupulous companies.
Read the Contract Carefully
Before signing the documents, read the text of the agreement in detail. Check what the interest rate is, what the repayment period is, what penalties are charged for late payment, and other important conditions.
Make sure that all clauses are clear and transparent and that your rights as a borrower are protected.
Check the Security of the Website
Make sure the website through which you are applying for the loan is secure (look for “https” in the address). You should not leave your personal or payment card details on dubious resources. Do not forget to keep copies of all documents related to the loan in a safe place.
Take Only What You Need
Assess your financial situation and ensure you can repay the loan on time. Do not be tempted to take money for unnecessary “wants” — borrow only the amount you need.
Choose Trusted Lenders
Focus on companies with a good reputation and long experience. Be wary of offers that seem too lucrative — they are often a trap. Your vigilance and common sense will save you money and nerves.
Don’t Resort to Loans all the Time
If you’ve already taken out loans, try not to make it a regular practice. Instead, focus on finding a steady source of income so you won’t end up in debt.
Conclusion
Payday loans can quickly bridge a financial hole if an unexpected expense arises. Numerous lenders offer such loans nowadays, and each person may choose the best option. However, due to high interest rates and the risks involved, such loans are rather expensive.
Weigh your financial possibilities before signing the documents for getting loans, carefully study all the terms and conditions, and ensure you’ll manage to return the debt in due time.
