Payday loans, also called payday advances, are small short-term loan facilities offered by various short term loan providers.
Like any other financial choice, there are both pros and cons of payday loans in these times. They are usually advertised as very convenient and fast short term loans, with the accompanying claims of low interest rates.
In these times however, when we need cash more quickly than our creditors or friends or family members are prepared to give us, payday loans can be a risky business.
They are not always convenient and can sometimes come back to bite us in the end.
Loan Repayment and Having a Good Credit Score
Payday loans, like any other loan, have pros and cons. Like any other loan, they allow the extension of credit but also requires repayment of the borrowed amount within a specified period. The period of time is usually between one week and two weeks, although this is not always the case, depending on the individual situation.
We all know how difficult it is to get a small amount of cash if you urgently need money to cater for the unforeseen needs of your family or yourself.
A good credit score can go a long way towards securing the funds you need, especially if you are looking to use it to pay for emergencies.
When it comes to emergencies such as car troubles, medical bills, or home repair, having a good credit score is certainly a big help. However, the next loan may not be so easily available if you have bad or no credit.
This does not mean, however, that you should build credit problems and use this money to pay for unexpected expenses.
Payday loans were designed to provide fast cash between paychecks. The problem occurs when borrowers fall behind and do not repay their loans on time. The consequences of defaulting can be very serious, including foreclosure and bankruptcy.
The only solution then is to contact an accredited financial counselor in your area who can assist you to get out from under the debt.
Secured Loans VS Unsecured Loans
When you want to borrow money to help you with unexpected expenses, it is important to know how much you will be able to borrow before you agree to a payday loan.
Generally, loans come in two forms: secured and unsecured.
Secured loans require collateral in the form of an asset (like a vehicle or electronics) that will be taken if you default on the loan.
Unsecured loans require no collateral but are subject to a higher interest rate since the lenders risk more if they fail to get back the principal amount owed on a timely basis.
Borrowers interested in unsecured types of loans should keep in mind what their options are if they find themselves unable to repay the loan by its due date.
Unsecured types of personal loans do not require any collateral to back up the borrower. This makes them more risky for lenders but increases their chances of having to return principal in the event that borrowers fail to meet repayment deadlines.
Some borrowers prefer these loans because they typically have shorter repayment terms and more flexible repayment options; however, they also have some of the pros and cons of this type of borrowing quite prominently displayed.
These loans can be quite attractive if borrowers have good credit; however, their rates and terms tend to be a lot more aggressive compared to secured loans.
How to Obtain Payday Loans Through a Bank Account
Payday advance repayments are conducted through electronic transfers from the borrower’s bank account to a designated company. Upon approval of the requested funds, the company then debits the bank account and withdraws the funds from the borrowers’ account.
The borrowers only need to have a checking or savings account in order to obtain such a loan.
Because the borrowers do not have to provide any collateral for borrowing, they are subject to the same risks as those who use traditional loans (including possible credit card overdrafts and possible late payments that will reflect on their credit report).
Do Payday Advances Need Collateral?
Payday advance companies do not typically require borrowers to provide any collateral to secure the loan, so these types of transactions are a lot riskier for the lender than traditional loans.
However, if borrowers make repeated defaulting payments, the lender may suspend or penalize them based on their past history of late or missed payments.
Since they are given such flexibility and convenience like traditional loans, payday loans offer borrowers a good alternative to people with bad credit and people who lack the good credit score or history necessary for securing a traditional loan. However, they must be carefully managed.