For many people who have a hard time applying for regular loans, online payday loans can seem valuable.
Payday loans are short-term loans that are normally paid on succeeding paydays, depending on the repayment scheme you agree on.
They can sometimes benefit people, yet a lot of people end up in more debt because of them.
Some lenders allow repayment of up to six months after taking out a loan.
Because it's easy to apply for a payday loan, it's an opportunity many people look at if they really need money for short-term emergencies only and have absolutely no other way of borrowing money or making money fast to tide them over.
It should always be a last resort and avoided if possible as the interest rates are so high, especially if you are unemployed and trying to get a loan.
Before taking out a loan, perhaps looking into your spending and making some adjustments can help. There are a lot of budgeting hacks that you can use to minimize your expenses and make some extra money.
If you’re wondering why people go for payday loans at all, here are some of the reasons why many people have fallen into the payday loan trap.
Credit scores aren't the only things taken into account
One of the reasons people are denied regular low interest loans is because they have bad credit scores.
Your credit score is given to you based on whether you have paid the balances of previous loans and lines of credit.
It’s based on how well you manage money and credit available to you. This is important for financial institutions because they use this score to determine how likely you are to pay off a loan.
If you missed a lot of previous payments, financial institutions might be hesitant to deal with you because they're not sure if they'll get their money back. You could be refused the loan, or you may get the loan but with a much higher interest.
With payday loan direct lenders, they will still assess your credit history, but a troubled credit past doesn't automatically mean you'll be turned down.
This means you could have an IVA debt and still get a payday loan, which simply would not be possible with any other loan type.
They will take other things such as your current employment and your ability to pay off the loan into consideration. Some lenders will send your loan application to other lenders if they are unable to process your loan. This is only done with your consent.
Easy to apply
Applying for a payday loan is a lot more convenient than applying for a regular loan. With a regular loan, you'll have to complete so many papers and supply countless documents. Only after they have reviewed your loan application and checked your credit history will they process the loan. And even then, it could still take a few days before the loan is processed.
If you're in need of a loan immediately, i.e. if it is an emergency, you won't have time to wait for your loan to be processed.
The application for a payday loan is quick and straightforward. You can just visit the website of payday loan lenders direct and spend a few minutes filling their forms.
This makes it a very tempting option as it’s quick to apply and you are more likely to be accepted if you have bad credit history.
Unfortunately these two reasons are exactly why many people go down the payday loan route and are willing to pay back very high amounts of interest.
Though they are a lot different from regular loans, a payday loan is still a loan. If you pay it back on time, it's a sign that you're responsible. Of course, failing to pay it back can affect your credit score the other way.
Whenever you deal with a lender, whether banks or online payday loans, you need to do your research carefully.
Don’t just be tempted by easy, quick cash to solve your problems as it could end up worsening your problems if you can’t afford the repayments. Plus you’ll be paying a huge premium to get a payday loan instead of a regular loan, or even finding the cash elsewhere.
I highly recommend looking at ways to save money and prioritising building an emergency fund to cover emergencies and times when cash is short. You’ll be thankful you were sensible and put money aside when a cash emergency arises.