Payday Loans: Pros and cons explained

You can get a payday loan based on your salary because it is an ultra-short loan with a flexible amount, a high-interest rate, and a short repayment period. Due to their quick disbursal and online application process, they are also called Instant Loans.

Anyone can fall victim to month-end financial pitfalls. It is ideal to have an emergency fund for such situations. The lack of one, however, cannot be blamed. Several valid reasons may explain why they don’t have one. Taking out a loan from friends or family is the next option. Getting the money without paying interest is the best option.

But don’t forget that they too have a month-end to deal with. In an economy where most people live paycheck to paycheck, it is unfair to burden your friends with such demands. Even so, you try your luck, and if you don’t get any, you will need to find a source that can provide you with funds quickly and on flexible terms. This is when payday loans may be an option to consider.

Payday Loans Pros

Turnaround time is super-fast: It may take less than five minutes to complete the process. In minutes, the much-needed funds are in your hands with the loan’s name ‘Instant Loan’. One of the biggest advantages of this is that you can get money if you need it.

Documentation is practically nonexistent: The majority of payday loans are processed online through a bank’s website or mobile app. To check your credit report and assess your eligibility, they just need your PAN number and mobile number. There is no need to fill out lengthy forms or submit photocopies of documents.

Amount of loan according to your needs: It’s easy to borrow just what you need and repay it when it’s convenient for you. Moreover, there is no need to provide proof of how much loan amount you require or how it will be used. The application will assess your eligibility based on the amount you wish to borrow. You can get the loan amount if your salary and credit score support it. You can use your payday loan to purchase anything your heart desires, from purchasing a moped for sale to buying a TV.

Repayment Terms: Loans of this type have a short term for repayment. A 7-day to 60-day repayment is available. In addition, regular repayments are not required. During the loan period, there is just one repayment that includes the principal and interest. In most cases, the lender will require a post-dated check (PDC) for the final amount with a fixed date or establish a standing instruction from your bank account. As a result, the loan will be repaid on time.

Cons of Payday Loans

High-Interest Rates: Payday loan lenders follow clever marketing tricks. They never mention the annual interest rate on these loans, instead, they quote the daily interest rate, which will be a single digit or just the interest amount you have to repay. Borrowers don’t work out the APR and just look at the affordability of the total repayment amount and apply for them. You can not only purchase goods but also services with your payday loan like moped insurance.

Get Caught in the Debt Trap: There will be a high penalty and interest accrual if you are unable to repay the amount on the said date. There is a possibility that you will not be able to repay this loan at some point in the future. As a result of recent adverse incidents relating to online lending platforms, serious questions have been raised about the workings of these platforms. To streamline these lending avenues, there needs to be much stricter regulation.
Here are some key takeaways: When you need cash urgently, payday loans are a great option. To mitigate risk, lenders charge steep interest rates for unsecured loans. It is not a good idea to take out a payday loan unless you have no other option. As an alternative to borrowing from family and friends, you could take out a secured loan, such as a gold loan, use your credit card cash advance, or ask your employer for a salary advance.