There is no doubt that payday loans have gotten a bad reputation and that many financial experts are critical to these kind of credits. The criticism is mainly based on the fact that the lenders behind these loans are targeting people with bad credit. And that the payday loans risk to make these people’s situation even harder which can lead to a dept cycle that is difficult to break.
But there are also positive voices saying that payday loans can be helpful in situations that demands quick access to money. Since the opinions regarding these kind of credits varies we wanted to discuss the pros and cons of payday loans. But first let us explain what a payday loan really is.
What is a payday loan?
A payday loan is a small unsecured loan between $100 and $4500. It’s a short-term loan meaning that the repayment period is short. Usually the loan needs to be fully repaid in a couple of months. You can usually apply for such a loan online and you identify yourself with electronic ID. By doing this you do not have to sign any physical documents or visiting a bank. Another thing that is typical for payday loans is that you receive the money fast. Many lenders offer payment the same day as the loan is granted. This fast access to money comes with high interest rates. If you want to learn more about payday loans we recommend you a visit to www.alltomsmslan.se. They have gathered all information about short-term loans in Sweden.
Pros of Payday Loans
If you’ve only listened to the critics you are probably not aware of the positive things about these kind of loans. After all, there are many people who turn to payday loans and there are many reasons why. First of all it’s an easy loan to get. Even for people with poor credit there is a high chance to be granted a loan. The high likelihood of approval have made it easier for people getting financial help even without a credit history or a high income.
Payday loans also have fewer requirements than other kind of loans. As long as you are at least 18 years of age, have some sort of income and a social security number there is a great chance that your application is accepted.
Last but not least a payday loan is easy to access. You can apply for a payday loan online 24 hours a day. As soon as the application is accepted the lender will make the payment which means that you will get the money into your account the same day.
Cons of Payday loans
There is a high price for this easy access to money. When you apply for a payday loan you can expect a high interest rate. This interest rate can be as high as 200-600% while the same interest rate on a personal loan can be as low as 4%.
On top of the high interest rate the loans are connected to a very short repayment period. This is why people often have a hard time repaying the loan in time. A missing payment can lead to high fees and default interest which can make the person forced to take a new loan to pay for the old one. This is often the start of a dept cycle that can escalate in a short period of time.
Another negative thing about payday loans is that many lenders doesn’t check if you are actually able to repay the loan. This means that people who are already in dept are able to get a new loan.