If you’ve never had to worry about money before, you may not have thought about what to do if you’re short on money. It’s a nightmare situation that no one wants to be in. Do you ask a loved one for help? Do you just not pay certain bills to put food on the table? One option that you might not have heard of is a payday loan. These loans work differently from other loans you might be familiar with, so it’s important to evaluate payday loan benefits and drawbacks before signing on the dotted line.
What Are They?
A payday loan is a short-term, high-interest loan that you can often be approved for quickly. These loans often come with fees and absurdly high interest rates, making them a last resort option in many situations. Depending on the vendor, the interest rates can surge up to 300% or higher. That, combined with the fees, makes payday loans very dangerous for your bank account, but can be helpful in the right circumstances.
Why Do People Get Them?
If a payday loan often costs more than it’s worth, why do people still get them? Because of their short-term nature, payday loans are helpful for those who encounter an unexpected expense or need some quick cash before their next paycheck hits their checking account. However, many people still get payday loans because they don’t fully understand what they’re getting themselves into. This can trap them in a cycle of debt that is incredibly hard to escape.
The Benefits
You Get Money Quickly
The best selling point (and really only selling point) for a payday loan is that you’ll get the money quickly. The approval process for payday loans is fairly quick. Though the exact process depends on the specific lender that you’re talking to, you often only need to have a checking account and meet the minimum age requirements in order to qualify. There is no income requirement or repayment plan in place. They are very easy to get, which makes them all the more dangerous to people who don’t understand everything that goes into them.
The Drawbacks
High Fees and Interest Rates
The biggest thing that people struggle with when it comes to payday loans is the incredibly high price tag that they come with. In the United States, each state has its own restrictions on how high the interest rate on a loan can be, ranging from no limit at all to payday loans being outright banned. These loans also have fees associated with them, which you’ll have to pay on top of the interest on the money you’re given, making it more expensive than many people realize.
Often a Quick Turnaround
The terms of a payday loan often set a quick turnaround time for repayment, often much quicker than people expect it to be, with some of them being only a week. It’s important to remember that the original purpose of these loans was to help people get their paychecks a little early to help cover expenses. If you’re getting a payday loan for some other reason, you need to have a plan for how you’re going to pay it back because the bill will come due faster than you think it will.
Won’t Help You Build Credit
Finally, while other loans help build your credit over time, most payday lenders don’t report anything to the credit bureaus. This means that paying on time simply means that you’re avoiding the late fees rather than building credit at the same time, which is what other loans offer.
When you’re desperate, it’s hard to focus on the long-term struggle when the short-term gain is so appealing, but it’s important that you do. Payday loans are a last resort, and they should be treated as such. Make sure you have a plan in place to pay the loan back on time, and make sure you can afford to do so. You don’t want to get caught in an endless cycle of debt as you struggle to pay it back. While payday loans have their benefits, weigh your options before committing to something you shouldn’t.
