Life often throws us so many challenges for which we may not have prepared beforehand. Often these are financial challenges that we have not planned or have a budget for. Medical emergencies, repair work, and immediate cash needs are the most common needs to seek for a payday loan. Many lenders offer payday loans so that you can borrow from them. We look at what payday loans are, if it affects your credit score, and the general pros and cons.
What is a Payday Loan?
In typical terms, it is nothing but a loan taken for a short duration. Usually, people seek payday loans in the latter half of their pay cycle when they face unforeseen expenses that they are not ready for.
Often people borrow anywhere from £50 to £1,000 for their expenses. Generally, these loans have high interest than regular loans. Since they have a higher rate of interest, they are not the best option for long-term repayments structures despite being an option with lenders.
While lenders are likely to provide flexible repayment options, a payday loan is generally paid once you receive your next salary. Repayments are often direct debts from your banking account, and failure to make repayments can have significant charges added to your repayment.
You should not opt for a payday loan if you do not have the ability of sources to make prompt repayments. It can also hurt your credit score when you fail to make repayments in time, as scheduled, and in the stipulated period, which is something to avoid. For more information, you can visit SpeedyCash.
Who Qualifies for a Payday Loan?
The benchmark set by lenders is nationality, age, and credit history. If you have a good credit score and history, getting approval for a payday loan can be a walk in the park. Some lenders provide payday loans for people with a bad credit score as well. However, they will have to pay high-interest rates.
The interest rate for people with bad credit scores is usually higher due to the risk factors involved. So, if you have a steady source of income with a good credit score, you can get a payday loan from almost any lender in the physical area where you reside.
Why are Payday Loans a Good Idea?
Payday loans are a relatively good idea for people who require immediate cash. The best part about these loans is that the approval is almost instantaneous. You would not have to wait for days to get permission for these loans as they can be processed within hours.
The documents required for these loans are also minimal. After getting the authorization, you can get the approved loan amount into your bank account. Being hassle-free and instantaneous are the two prominent reasons people choose payday loans.
How to Apply for Payday Loans?
There are two ways using which you can apply for payday loans from lenders. The first option is to fill up a form online and submit the required documents. The second one would be by visiting a branch of the lender close to you to apply.
Usually, the entire process of applying and getting approved for your payday loan is relatively simple and faster considering the alternative options. Anyone who meets the fundamental criteria can apply for these payday loans with ease.
Risk Factors of Payday Loans
Any type of loan that you borrow has its own set of risk factors attached to them. The same applies to payday loans too. Getting caught up in a debt cycle is one of the most prominent risks of the payday loans that people suffer from when they do not plan their finances.
The other significant risk is not repaying the loan in time. The fees for failure to make repayments on time can be massive. If you plan your repayments and budget properly, there are minimal chances for you to face any financial trouble related to payday loans.
Payday Loan Consolidation
Consolidation of payday loans is something that people often do. It happens when they have borrowed from multiple lenders with high-interest rates. The repayment of loans to different lenders can often become stressful, even for a person with a good day job.
If you consolidate all your loans and plan to make repayments to one lender, then you can ease your financial burden. You are also likely to get loans at lesser interest rates, which can make your repayment structures easier than it already is.
Pros and Cons of Payday Loans
Like we already mentioned, any loan you take up would have its own set of advantages and risks that come along with it. Knowing these are important before you opt for a payday loan from any lender. We look at the major pros and cons involved in taking a payday loan.
- Minimal paperwork and processing
- Instantaneous approval (usually within minutes or a few hours)
- Helps meet your emergency cash requirements
- Some lenders offer flexible repayment options
- People with lower credit scores can also apply and get approved
- Auto debited from your banking account
- Flexible loan amounts depending on your specific requirements
- Multiple lending options to choose from
- Easy consolidation of numerous or different loans
- Repayment in time does not affect your credit score
- High-interest rates
- Failure of timely repayments attract large amounts of fees
- Risk of being caught up in a debt cycle
As long as you plan and schedule your repayments, there should be no negative impact on your credit score due to utilizing a payday loan. Because of the significant advantages that payday loans come with, the risks involved are usually negligible. Moreover, choosing to pay the loan in full and as quickly as possible usually increases your credit rating with most companies. Remember, applying for a payday loan may not even impact your credit score since most lenders calculate your eligibility based on their criteria and methods. It means that they do not even consider payday loans differently from other loan types.