Pros and Cons of Payday Loans

Payday loans have changed the UK financial services industry in a way that is unheard of. Statistics show that over 1.2m Brits have used these short term loans at least once, and the growing popularity of these loans mean that they are here to stay.  As with all financial services products, there are pros and cons to using payday loans online:

PROS

  • Payday loans give people access to credit in a way that has been done before. The Consumer Credit Act made it easier for people to find credit without going through a lot of bureaucracy to get there. For complete convenience, payday loans give people credit without stress.
  • They make consumers bankable.  A payday loan shows up on your credit report. This is excellent news for people who want to improve their credit rating. Paying back your short term loan on time will show other lenders such as mortgage lenders that you can be trusted with their money and resources.
  • Payday loans can be applied for online. Most personal loans from the high street require you to go into the branch in order to discuss your account. This aspect of the equation is taken away when you apply for same day loans. Simply sending your application in online will allow you to be cleared for instant cash.

CONS

  • Interest rates can be high. One feature of loans that borrowers should be aware of is interest rates tend to be higher than high street banks. This is to cover the risk of default of payday loan borrowers. If you know you can afford the loan you are applying for, the interest rate should not have a large effect on your ability to repay it.
  • If you don’t keep up with repayments, debts can roll over which can put financial pressure on you.

Top tip: Look at your financial expenses and income each month to assess how much you can borrow and pay off (interest included).

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9 thoughts on “Pros and Cons of Payday Loans

    • I’m in the same boat as you. I hopefully will never need them. Hopefully those that do can get some insight.

  1. I have an addictive personality. I wouldn’t want to get started on borrowing. Especially when the only thing I owe is my house.

    Coming down though… 🙂

  2. Um, dude…payday loans are a major ripoff. Don’t get involved with them – they are the personal finance equivalent of smoking crack cocaine.

    James

  3. Payday loans in general can be addictive and could spiral you in to a really bad situation. I had a really good friend who usually took care of the finances in their household but she suffered some medical issues and the husband took over. It wasn’t until about a year later when she was well and started looking at the finances again and asked the husband why it seemed there was no money in the checking account. He admitted that he continually took out payday loans and pretty much most of the paychecks went to pay them off, then he had to borrow again to pay bills.

    Fortunately they were able to get themselves out of this cycle with some family help and better budgeting (and giving the finances back to the wife). However most people don’t know how to budget or to fix their issues.

    Do payday loans in the US appear on your credit report? I wasn’t sure they did. I do know that some local credit unions, including mine, are offering real loans with low balances and better interest rates/fees than a traditional payday lender. This truly can help your credit reports as long as you pay them off – but these can be much better than traditional payday loans and they’re more regulated too.

    • It’s definitely a cycle you don’t want to get into. Glad that your friend was able to get out of it before it got too bad.

  4. People without access to traditional ‘bank credit’ need a place to get short-term loans. Don’t let those ‘annualized’ interest rates fool you. This is not an annual loan. For your $17.50 or $15 (or whatever the state’s REGULATED cap is), consumers can avoid things like $75 shut-off fees from a utility or $38 NSF fees from a bank. Payday loans are a bargain compared to the fees that banks and other institutions charge consumers.
    Kate@PaydayLoansAt recently posted..No-Fee Mortgage Loans Are On Their WayMy Profile

    • The goal is always to be able to stay ahead of your bills without having to use payday loans or get to the point where you have overdraft/shutoff fees to worry about.

  5. I totally agree with @Cappattia, “Payday loans in general can be addictive and could spiral you in to a really bad situation”. They should think twice if they truly need to borrow money, if it is due to material things, just those you wanted, then forget it.
    PDayFreedom recently posted..Start Rebuilding Your CreditMy Profile

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