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Payday Loans – The Good and the Bad Points

Due to the credit crunch, which has affected people across the world, getting short-term loans from traditional lending institutions has become quite difficult. While traditional banks are hesitant to give out short-term loans to people, payday loan lenders are still very active in providing loans to people. Prior to taking out a wage advance loan, there are several advantages and disadvantages that must be considered.

The first advantage of cash advances is that they are a very quick way to get cash. While you may manage your daily expenses well, there are situations when you may need to pay for something immediately, but do not have the immediate liquidity to do so. In a situation when you don’t have access to the money you need, a payday loan could give you the money you need. In many situations, you can receive your loan proceeds deposited into your bank account within just a few hours of applying.

The second advantage of payday loans is that they are easy to receive. They do not require any form of collateral verification or credit checks, which typically take traditional mortgage lenders weeks to accomplish. Instead, a the lender will just need to verify that you are still employed, and confirm how much money you make by reviewing some recent check stubs.

The third advantage of wage advance loans is that they can help you build your credit score. Not only will repayment of your payday loan be a positive mark on your report, but by getting the loan proceeds, you will be able to pay all of your other monthly debts on time.

The main disadvantage of payday loans is that they come with high interest rates compared to other types of loans. Interest rates on these loans typically range from 15% up to over 30% per month, which equate to nearly 360% per year. Furthermore, the loan is structured to be repaid with your next paycheck. If you do not repay the loan at this time, you may violate the loan agreement, which could lead to additional penalties. In some loan agreements, this additional penalty will be as high as double the previous interest rate.

The second disadvantage is that they can create a cycle of borrowing. People who do not manage their finances properly may begin to rely on credit to meet their bills each month. This practice will result in the borrower never fully getting out of debt and constantly being behind on payments.