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What Is A Payday Loan

When faced by an emergency and you do not have any money on you, the most reasonable option of finding the money that you need is by turning to a loan that can be approved as soon as possible. There are many different types of such loans. A payday loan is one of such loans that you can turn to when faced by an emergency that requires a considerable amount of money quickly.

So, what is a payday loan?
A payday loan is a loan that financial institutions offer anyone has proof of a steady income so that they can repay it on their next payday. Not all financial institutions offer these loans although a number of banks are also steadily offering their clients this option. Basically, this loan is like an advance payment on your next salary or income that has to be repaid once you are paid. This loans is very different from traditional personal loans because it usually has a very short lifespan and has a low limit on the amount of money that you can borrow.

In order to understand payday loans clearly, it is crucial to look at some of the advantages and disadvantages of this loan.

Advantages of Payday Loans
Payday loans are usually very easy to apply for. Today, many financial institutions allow their customers to apply for the loan online. In fact, you do not have to visit the lender’s offices for you to get the loan.

Secondly, payday loans can help you through any emergency given the speed with which they can be approved and money availed in your checking account. Normally, you are able to have the loan approved in record 30 minutes and money in your account within one hour of approval.

You can also go for the loan to handle any financial difficulties that you may be faced with. Unlike business loans or other types of personal loans where the lender requires you to stipulate the reason for your borrowing, payday loans are free from that. This means that you can use the money on virtually any pressing issues.

Payday loans are also very convenient for many people. Apart from the fact that the loan can be issued outside of business hours, the lender does not also pay much attention to your credit score. Therefore, people with bad credits can also have the loan and repay it easily since it usually does not exceed your monthly pay.

Disadvantages of Payday Loans
The main disadvantage of payday loans is the high interest rates that they carry. Typically, these loans have very high APR of up to 1000% depending on the lender. This may be attributed to their risky nature since the lender does not really have a guarantee that you will pay the loan within the stipulated time.

Many lenders require the loan to be repaid within a few weeks. Failure to do so usually translates in very stiff penalties that can almost double the amount owed. As a result of this, it is very easy for the borrower to fall into a vicious debt cycle because they will be forced to borrow again to settle the current loan. With many borrowers living from one pay check to the next one, it becomes very difficult to free themselves from such debts.

Lastly, some lenders have a tendency to lie to their customers about the interest rates so that they can have them pick up the loan. Other than these rates, there is a lot of information that they can fail to disclose thereby tricking the borrower. However, many of these drawbacks can be eliminated if you choose to repay the loan within the stipulated time and read through its terms and conditions before applying.