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Pros And Cons Of Payday Loans

Payday loans are basically used in order to get through a ‘rough spot’ before your next payday. These are short-term unsecured loans, regardless of whether repayment of loans is linked to a borrower’s payday. Many people resort to payday loans as they are relatively easy to apply for and can help them get out of a tight spot quickly.

Payday loans are typically issued by licensed money lenders although banks do provide payday loans as well but they are more widely known as personal loans. For licensed money lenders, they are governed very strictly by the local government and there are policies in place to protect borrowers.

However, these loans come with an equal share of advantages and disadvantages.

Pros

  • People with little or bad credit can apply for payday loans and most likely get approved.
  • You do not need to show much proof or documentation when applying for a loan. The basic proof you need to show is just proof of employment or income and some recent pay slips.
  • Payday loans offer  a way to get quick cash for all your financial needs.
  • Paperwork for a payday loan is minimal and it is pretty quick and easy. The whole loan process will take less than a half hour at most and you can get the money almost instantaneously if your loan is approved.
  • You are using advance money from your pay or income. In this way you can actually resolve your financial difficulties before you get your pay.
  • If you are late in paying for essential services such as your utility bills or phone bills, a payday loan can help prevent any disruptions from using these services when you cannot afford to pay your bills on time.
  • No collateral is required.

Cons

  • Payday loans are usually in small amounts of around a few hundred dollars.
  • The interest rates for payday loans are usually very high because no collateral is required.
  • If you cannot pay your loan on time, the late fees and interest rates are going to get you further into debt.
  • There are many fine prints and you need to understand them before taking up one. Examples are the additional costs for late payments or extension of loan. Failure to do so may result in more financial difficulties.
  • Some money lenders are unscrupulous and may charge you higher interest rates than market rates, therefore it is important for you to look around first before taking up a loan

As you can see, payday loans should be applied for after carefully going through all the other alternatives that can help in overcoming the financial crisis one may be going through. Having said that, if you really have no choice but to take up a payday loan, try asking around for recommendations or do some proper research online before making a decision to borrow from which bank or money lender.