Should You Get a Payday Loan? Here’s Why or Why Not

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At some point in time, we all experience unexpected financial challenges that require immediate solutions. If you find yourself in this predicament, a payday loan can be a good option you can consider to get money quickly. However, this kind of short-term loan will be due on your next payday, and it can be very risky. Read on to learn the reasons why you should and shouldn’t get a payday loan. 

Get Financial Relief

The main purpose of payday loans is to help individuals who experience financial challenges that need to be addressed as soon as possible. If you are employed, then a payday loan can be the right option. Due to economic challenges, very few people can manage to save money in their savings accounts.  

Easy to Get

If you need money to cover a financial emergency, payday loans are designed to help people like you. The application process for quick payday loans is as fast as the name suggests, and your loan can be approved within a few minutes. You can also apply online, and you can spread the repayment of your credit over several months depending on the lender you choose. Payday loans are different from banks since they do not require extensive paperwork. Even with poor credit history, you can get a payday loan as long as you can manage to repay it. 

High-Interest Rates

On the downside, payday loans come with very high-interest rates since some of the borrowers pose high risks. The interest rates charged range between 20% and 30%. Furthermore, the repayment period is short given that you should repay the principal plus interest on or before the next paycheck. Failure to repay your loan can lead to penalties that will worsen your financial situation.  

Create a Cycle of Credit

Most lenders who offer payday loans do not consider the applicant’s financial status like their capability to meet other financial obligations. As a result, some of the borrowers fail to repay their loans on time, and they will end up being charged penalties and high-interest rates. This will lead to the creation of a vicious cycle of debt where the borrowers will continuously borrow short-term loans to meet their everyday needs.   

Payday Loans Can Ruin Your Credit

Payday loans are tempting, but they can further ruin your credit and seriously harm your financials in both the short and long terms. Some people prefer short-term loans because of bad credit, but this can worsen the situation in the future. If your account remains in the negative for an extended time, your credit will continue to suffer, and you may not be able to get a bank loan. 

While payday loans provide financial relief to people hit by hard times, they are not a good idea. The loans are associated with high costs including interest rates, fees, and penalties when the borrowers default on their repayment obligations. As a result, many people will end up struggling to repay their loans which will worsen their financial situation.