Every industry has some areas that are highly debatable and controversial. In the personal finance world that would be payday loans. These loans are viewed as evil by almost all the personal finance experts and for good reasons. Payday loans and payday lenders are a constant debate among the financial analysts and personal finance bloggers. If everyone hates when why is this industry thriving? Because for some people they are the only source of quick cash when they need it. Before you use payday loans you have to understand the advantages and disadvantages of them to make an educated decision.
Advantages of Payday Loans
- Fast cash : If you need quick cash advances you will get it on the same day. With a lot of payday loan lenders operating online. It is very easy to get fast cash.
- Small loans : If all you need is a couple of hundred dollars, a lot of banks won’t give a loan for that small amount.
- Loans with no credit : For some with bad credit or little credit history, a traditional route to get a loan might not be possible.
- Little to no documents : Most of the payday loans require very little to no documents. So it is very convenient.
Disadvantages of Payday loans
- Exorbitant interest rates : You will pay the price for convenience. The interest rate for these type of loans are many magnitude higher than the traditional loan. I have even heard loans that charged half of the principal as interest.
- Loan capped to small amounts : You can’t get a lot of money with payday loans , in fact you don’t want to. Most payday loans limit the amount to $300 – $1500.
- Small pay back period : It is called a pay day loan for a reason. Most of the loans will require you to pay it back by the next pay period. These are very short term loan.
Alternatives to pay day loans
- Payroll advance from your employer : Check your employer if you can obtain a payroll advance to work your short term need.
- Sell items on Craigslist : Almost every one of us have a lot of stuff we don’t need. Go through the items you own and sell stuff that are not necessary for your living.
- Borrow from friends/family : But make sure you pay them back promptly.
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