Despite the disadvantages when compared to other forms of credit, there will always be people who turn their attention to a payday loan when they need money.
While there is nothing wrong with considering all your financial options, especially when searching for a loan, it’s important to do so with a clear mind. Without this, you could find yourself making an uninformed decision that costs you more money and adds stress to your life.
Here are the three primary reasons why there will always be people who use payday loans:
- Simply put, it doesn’t take long to secure a payday loan. In fact, with a few minutes of time on your side, you can complete the necessary paperwork and obtain the money you need. This alone is reason enough for some people to go down this path.
- Borrowers are always looking to do whatever is easiest on them. And with a payday loan, convenience is the name of the game. You can visit a local storefront or find a lender online. From there, it once again comes down to speed. There’s not a lot of paperwork and there is no waiting around.
- Few requirements. With a bank loan or credit card, there are a number of requirements you need to meet in order to qualify. With a payday loan, this isn’t the case. Generally speaking, as long as you have a job you’ll qualify.
So, what’s the problem with securing a payday loan? Despite these perceived benefits, you need to understand that there are some serious pitfalls.
At the top of the list is the cost of a payday loan. Here’s what the Consumer Financial Protection Bureau has to say about this:
“Many state laws set a maximum amount for payday loan fees ranging from $10 to $30 for every $100 borrowed. A typical two-week payday loan with a $15 per $100 fee equates to an annual percentage rate (APR) of almost 400 percent. By comparison, APRs on credit cards can range from about 12 percent to about 30 percent. In many states that permit payday lending, the cost of the loan, fees, and the maximum loan amount are capped.”
Even though you can find some benefits of a payday loan, the high cost should be enough to point you in another direction.
Do you have any experience with this type of loan?