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Payday loans are short term loans that are very popular in countries like United States. These loans are offered by different types of financial institutions or centers and not by conventional institutions like banks. Loan amount offered under payday loan is generally small.
For example, most of payday lenders have limited lending up to $500-$1000 only. Thus, for fulfilling small financial requirements, payday loans are considered as good source. Since these are short term loans, borrower does not get longer repayment periods, unlike in conventional personal loans.
Payday loans become repayable automatically on the payday of borrower. In most of cases, repayment period has been restricted to two weeks only. Like other loans, if repayment is not made on the due date, penalty and other charges are applied on the outstanding loan amount.
There are many advantages of payday loans that make them desirable. First of all, without telling friends and relatives, a person can fulfill his or her short term requirements. For example, if a person receives an unexpected bill of $300, payment of which has to be made immediately, and his / her payday is also not near, friends and relatives have to be contacted for borrowing money.
Borrowing small amount of money from friends and relatives becomes embarrassing sometimes. Through payday loans, such expenditures can be met easily. Since information provided by the borrower is kept confidential by lenders, friends and relatives do not know about the loan taken.
Second important advantage of payday loan is the ease with which required amount is obtained. Almost all the payday loan lenders accept online applications. These applications can be filled from the comfort of home or office. When this loan application is submitted, verification is made by the lender in a fast manner and loan amount is credited directly into the checking or saving account of borrower. It is really astonishing to know that there have been cases where loan amount had been credited into the account within 24 hours of making application. Unlike conventional loans, borrower does not have to contact lender many times.
One of greatest advantages of payday loans is that borrower does not have to submit many types of documents to lender, which is often very time consuming and tedious. Though payday loan lenders have been asking for salary stubs, identity and address proofs etc, now a day, even these requirements are being done away with. Lenders have now resorted to ‘fax-less payday loans’, in which, borrower is not required to facsimile salary stub or identity proof etc.
This has made getting payday loans very easy. Upon the verification of the information contained in the online application, loan amount is disbursed. However, borrower must ensure that his or her bank account, whether checking or saving, accepts electronic payments. This is because amount under payday loan is transferred electronically by the lender.
Another advantage of payday loan is absence of objective. In other words, lender is not considered about the purpose for which payday loan is required. Whether money is required for payment of medical bills or for enjoying vacation or for investment in business, lender is least bothered.
There are some disadvantages of payday loans too, which make these loans undesirable. One of biggest disadvantage attached with payday loans is the interest charged. In terms of interest rate, payday loans are most expensive loans available. One aspect that has to be understood is that now a day, payday loan lenders are not mentioning rate of interest on loans, as charging exorbitant interest rate has been declared illegal.
Even in many states, payday loans are not available at all, as they have been termed illegal. Payday loan lenders are now mentioning ‘finance charges’ instead of rate of interest. If seen with respect to annual percentage rate, finance charges can be as high as 350%. Borrower must be ready to pay exorbitant finance charges on payday loans if he fulfills his requirements through these loans. Since payday loans are repaid automatically on the payday, borrower cannot do much about the repayment.
Even if a borrower stops deduction of loan amount from his or her salary, penalty and other charges applied by lenders are so high that finance charges sometime become equal to the loan amount. Due to this behavior, payday loan lenders have also been termed as ‘loan sharks’ by some experts in United States. It is noteworthy that lenders usually obtain a post dated check from the borrower towards repayment. Military personnel have been the major victims of payday loans in United States, as these had to pay exorbitant finance charges due to non-repayment of loan on the payday.
Another disadvantage of payday loans is the harassment faced by the borrower on non-repayment. Unlike conventional persona loans, where borrower is intimated about the non-repayment and is also given some time for fulfilling financial commitment, payday loan lenders are hiring services of recovery agents for realizing the outstanding loan amount. There agents make threatening phone calls and also visit home of borrower to terrify them. There have been cases where people have borrowed money from friends and relatives for closing the payday loan accounts. Such people consider payday loan as the biggest nightmare encountered by them.
Many experts feel that if some immediate payment requirements have occurred, before applying for payday loan for fulfilling these, a person should consider all the pros and cons. If he / she thinks that he / she would be able to make repayment on the payday in an easy manner, there is no harm in obtaining payday loan. However, if some problems are found regarding repayment, it is better payday loans are avoided.
In such circumstances, friends and relatives can be approached. It should also be tried if immediate payment can be deferred. For example, if a person has received a credit card statement requiring him or her to pay $400 immediately, credit card company can be approached for seeking some time. Even if payday loan has been obtained and repayment does not seem possible, it is better to approach lender and seek some time. In that manner, harassing calls of recovery agents can be avoided at least.
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