When normal loans just can’t be obtained for one reason or another, the payday loan is a great solution to fix small problems. They aren’t usually the biggest loan amounts, but they do give great purpose to those who need a little extra cash fast.
High interest rates are to be expected from a payday loan- this is considered common because of a few different aspects in their design. The first reason that payday loans may have inflated interest rates is because the lender operates based on smaller payback terms. A payday loan usually won’t have a term over a couple of weeks to a month, and thus, lenders raise the interest rate to still make a profit.
The best thing about a payday loan is the fact that it usually doesn’t require a credit check. Credit ratings are usually the reason why most can’t obtain a normal loan from regular lenders in the first place, and when they are turned down, they are almost always approved by a payday loan entity. Usually proof of income is required, or at the very least a good plan to repay the loan on time.
A payday loan is also more expensive simply because there is no collateral being offering to secure the loan with. Secured loans typically bring much better rates since lenders can take collateral in case the borrower defaults on the loan. In the case of the unsecured payday loan, there is more risk to the lender- and this is passed onto the borrower in the form of increased interest rates.
It’s good to note that most payday loan institutions make their money based on cycles of predatory lending, although individual states have cracked down on what payday loan institutions can do. A payday loan is highly regulated, if even allowed at all. Some states won’t allow the loan as it is seen as taking advantage of the lower class families who get caught in a cycle of debt.
Always be responsible when dealing with the financial industry- being careless will result in years of poor credit ratings or even legal troubles. This is especially true with payday loans when considering the frustrations of debt. If possible, look for alternatives in obtaining money- perhaps from a friend or family member.
In the end payday loans have their purpose- but certainly are dangerous if used incorrectly. Talk to a loan professional for more information on the subject, and to see whether or not you qualify for a more stable type of loan or consulting service.
Author: Chris ChanningThis author has published 19 articles so far.