Most of us experience financial struggles at one point in our lives. It might be a medical emergency, home expenses, and bills. And looking for additional cash to fix the issues becomes a problem. Lucky are those who have family and friends they can run to in case they need to borrow extra money. However, it doesn’t happen all the time, and the people we usually turn to cannot provide the cash as well.
If the same scenario happens to you, what are the possible options you have? You might be thinking of getting a payday loan, which is fortunately available all the time payday loans Knoxville Tennessee. But before you take out a payday loan, make sure you know what it means and what is the drawback in taking one.
What is a payday loan?
If you are in a tight spot and urgently need the cash, taking out a payday loan can help you quickly solve your financial problem.
In a nutshell, a payday loan is a quick cash loan with a high-interest rate since it proposes a high risk to the lenders. The repayment is only made once, that’s when you get your next paycheck. That’s basically what a payday loan is, yet there are still things you should know before you finally dive into taking out this kind of loan when you need it in the future.
Below we have included the pros and cons of a payday loan- factors that you need to consider before you make your decision.
Pros of taking out a payday loan
Here are the good points in taking out a payday loan, and some of these reasons are so attractive that they draw many individuals to take out this type of loan these days.
1. Easy application.
Many lenders who offer payday loans are available 24 hours a day, seven times a week, and even have online applications. Applications are easy , and approval is done immediately, making this type of loan inviting for people who are in dire need of cash.
2. No strict requirements.
One of the reasons why payday loans become an easy option for an individual who needs instant cash is because it requires fewer requirements. Unlike in traditional loans, they require a lot of requirements to verify your ability to repay the loan. But in payday loan you only need the following:
- At least 18 years old
- Own a government ID or Social Security Number
- Employed and have a regular source of income
- Have an active bank account
3. No credit check needed.
Another good thing with a payday loan is if you have a bad credit history or have a low credit score, you can still actually get one. For payday loans, no credit check is needed. This reason makes the payday loan attractive. Also, there are already many online lenders that offer payday loans for bad credit .
But be wary of this, you can get the cash quickly, but it comes with a high-interest rate and big penalties if you miss the repayment schedule. It is the most significant drawback of taking out a payday loan, and sometimes the reason why many individuals are caught in a debt cycle.
The Cons of a payday loan
If there is an advantage there are also disadvantages in taking out a payday loan and here are some of them:
1. High-interest rate.
If you have tried taking out a personal loan or used your credit card, you can tell that the interest rate between the two compared to a payday loan is huge. Technically, a payday loan is expensive, that is why some of the borrowers are caught in a debt cycle since they cannot repay the total amount within the set schedule.
2. Time constraints.
Aside from the high-interest rate of a payday loan, the time constraints also become the problem. Some lenders offer up to 3 months of repayment, but usually, payday loans are paid at once, which makes it a problem for some borrowers. There are monthly expenses and budgeting that needs to take place, and repaying a loan in full amount could be tricky.
3. Collection practices.
When you take out a payday loan, you and the lender agree to a deal that you commit to paying the amount on time. Since these lenders are extra cautious, lenders ask the borrowers to authorize a CPA or a Continuous Payment Authority. This allows them to take payment directly to your bank account whether the money is there or not.
This collection practice makes taking out a payday loan a bad choice. As such, you must exhaust all your resources first before jumping into taking out a payday loan right away.
A payday loan is a quick fix type of loan; you will have the money you want hassle-free. However, it ties with some drawbacks that require you to be cautious. You can always take out a payday loan, but make sure you only use it for necessity and not for luxury expenses. Also, you have already gone through all the possible resources to borrow money. That way, you know that taking out a payday loan is the only option left for you.