Cash Advance/Payday Loan : Pros & Cons

The car broke down and you’re short of funds? Need to buy a new gaming console but your savings are a bit short? What you need is a short-term cash loan that is unsecured and can be easily approved within a matter of hours. That is what a Payday Loan offers- emergency funds, on easy terms. These loans are usually granted by check cashers and pawn shops. By the end of 2010, there was an estimate of 19,700 Payday Loan stores operating. The lender holds the borrower’s personal check, for a future repayment. The check includes the original loan amount and the interest charged. Sometimes, the lender is provided electronic access to the borrower’s bank account which makes the process much easier and hassle free for both the parties.

Payday Loan Terms :
The loans can be acquired from $100 to $1,000 and are often considered an expensive alternative to a standard bank loan and costing 400% annual interest. But the best part is that you don’t have to go through the tedious credit check process. A loan can be obtained even if you have a bad credit history. But before you sign up for something like this, it’s better to take a look at both the sweet side and the bitter side.

Pros :

• Easy Approval – Unlike conventional loans, Payday loans are not much hard to get. It usually takes months to get approval for conventional loans, whereas payday loans can be approved within a matter of minutes. With the rising competition in market, borrower can easily find a lender who’ll approve the loan within 72 hours maximum and send the funds through electronic transfer ion the same day.

• Helps Save Money – In case of a bounced or cancelled check, the incurred expenses might add to borrower worries. But with Payday loans borrower can avoid such charges. In short, borrower saves money.

• Easy Application Process – There’s no need to fill troublesome forms and spend hours at the bank consulting with the loan advisor. A large majority of Payday Loans can be easily acquired online. The process is hassle free which makes it more attractive to people in need of short term loans. The borrower just has to be 18 or older and must be employed at a permanent job.

• No Credit Report Required – When applying for a conventional loan, the borrower is required to submit proofs of their income and credit history. But when it comes to acquiring a payday loan, a good credit report isn’t required.

Cons :

• Short Term – These loans are only for a short period of time. They are not approved for several months and borrower will need to get a conventional loan for such a purpose. Typically, only 30 days are granted to pay back the borrowed amount along with the interest or whatever time period was decided mutually.

• Small Amounts – Payday loans grant small amounts – up to $1000, depending on state legal limits. Amounts higher than $1000, even for a short term must be acquired from other funding sources.

• Higher Interest – Interest rates for Payday Loans may range from 10% – 30%. This is high when compared to conventional Interest rates. These will automatically double if the borrower fails to repay the loan according to the repayment schedule.

• Fraud Possibilities – The probability of the loan that the borrower is applying at being an unreliable source is quite significant, and the chances will increase if the borrower is applying for the loan online. It’s wise to check out the company that is offering the loan. The borrower’s information is entrusted to the lender who can use it illegally or even sell it.

• Current Bank Account – Even if the borrower is 18 or older, a Payday loan can be rejected just on the basis of unavailability of a checking bank account. But lenders require a bank account before they approve the loan. Not having a bank account means you can’t write a check, which makes the loan insecure and too risky for the lender.

• Full Time Employment Required – The borrower might be getting income from some other sources and is quite capable of repaying the loan but without proof of a steady job and fixed salary, you can’t get a Payday Loan.

Payday loans might seem an easy way out of a finance emergency but the borrower must take into account the consequences. It is recommended that people who are already in debt steer clear of Payday Loans. The steep interest rates make the small amount double over time and the borrower will find themselves in a much greater debt than the one they had before. Verify that the lender is licensed by the ASIC Professional Register before you apply for a Payday Loan. But don’t let these disadvantages frighten you. These loans are great help in times of need. If you can afford to repay the loan amount within the required time, then this is a much better and easier option than a standard bank loan.