Are Payday Loans Pure Evil, or Do They Serve a Purpose?

Payday loans serve many purposes and are seen by many as a difficult answer to immediate financial problems. Although they can lead to further financial problems, if used correctly, they can actually be a short-term solution for financial needs. Here are some of the advantages and disadvantages of payday loans.

Advantages of Payday Loans

There are several distinct advantages to taking out a short-term payday loan. For example, if you are in danger of having your utilities turned off or missing a car payment, it can certainly be a benefit to take out a short-term loan and have cash readily available to pay your bills.

Payday loans are also a way to maintain your credit. If you find that your work pay schedule does not make is possible for you to make credit card or other payments in a timely fashion, it is possible to take out a short-term loan so that you are not dinged with late payments on your credit report or penalized with late payment fees. Another advantage of payday loans is that they are often very quickly approved. If you apply to an online payday loan company, you may find that your application is processed and the funds are deposited into your bank account within 24 hours or less.

Disadvantages of Payday Loans

While there are definitely advantages to using short-term payday loans, there are also disadvantages to be considered before using one of these loans. Payday loan companies charge very high rates of interest, particularly when compared to the current rates of interest that are charged by conventional banks. Interest rates can often range from 30 percent upwards to 150 percent of the loan amount.

In addition to high interest rates, there are also numerous additional fees that are often included with loan repayment conditions. These fees can add several hundred dollars to your obligation to pay the short-term loan.

Short-term payday loans are just that – short-term. Unlike conventional bank loans, where you may have several months or even years to repay the loan, most payday loans are for 21 days or less. The most common repayment term is 14 days from the day the loan is funded. Although there are payday loans that have longer terms, there are stiff additional fee penalties if you should miss or be late on a payment.

Finally, there are few regulations on the payday loan industry, unlike the conventional loan industry. As a result, there are many predatory lenders who make payday loans to people who are little able to afford them or who are likely to fall into the trap of needing to take out another short-term loan just to pay back the current loan. This can be financially dangerous and lead to complete financial ruin.

If you find yourself in a position to need a short-term loan, consider carefully before you decide to use a payday loan. Shop around for the best loan interest rates and fees and the best payment terms before choosing a loan company.