Advantages of payday loans: How they can work for you
Emergencies can happen when you least expect them, so you should have different forms of financial contingencies. One such contingency is the payday loan, a high-cost short-term credit (HCSTC) you can get even with a low credit score. While payday loans have higher interest rates compared to other types of loans, they are a viable option for those in need of quick cash who may not have access to other forms of credit.
Whether you plan to borrow 50 pounds or just want to see why some people prefer payday loans over long-term, high-value ones, read on to learn about the advantages of payday loans.
Easy access
Payday loans are among the most easily accessible money-borrowing schemes. Below are the reasons why.
Easy application process
Most reputable banks or lending companies now have online processing for payday loans. The application process is even more straightforward if you already have an existing account with the lending company.
However, interest rates from different lending companies can vary significantly, so it’s best to check them.
Quick approval
Depending on your standing with these institutions, the process could be as short as a click of a button. However, note that your previous loan transactions and repayment history could affect the speed of processing and approval.
Your mode of loan application can also affect its speed. Online applications generally get approved faster.
No credit check is required
Most payday loan applications won’t require a credit check, so people with low credit scores can still easily apply for one. However, the lending company might still need the lender to show them proof of income or short-term capacities for the loan’s repayment.
Flexible use
Another reason why some prefer payday loans is their overall flexibility. Let’s expand on this below.
No restrictions on how the loan is used
Unlike other loan types, such as your mortgage, business, or student loans, you can use your payday loan for any expenses. This means you won’t have to worry about the closing process or collecting financial documents related to your loan.
Ideal for unexpected expenses
The payday loan’s flexibility also allows you to tackle unexpected expenses, precisely what financial experts advise. As the supposed last resort, its high-interest rates make up for the instant solution it provides.
Can cover bills until the next payday
As the name suggests, payday loans are meant to get you afloat until you can pay them using your next paycheck. Depending on your situation and the lending company’s policy, this short-term agreement can also benefit you.
Sometimes lending companies reward early repayments with discounts. The overall interest amount can also be lower than that of installment loans.
Convenient repayment
Payday loans are also quickly repaid, thanks to modern systems. Let’s elaborate below.
Repayment terms can be adjusted to fit your budget
Another advantage of payday loans is adjusting how much you borrow and how you want to repay them. Typically, lending companies will give you a detailed invoice containing the total repayment amount (borrowed plus interest) and repayment dates.
They also give you real-time calculations that you can adjust on the spot depending on how much you need.
Option to extend the repayment period
The lending company may also give you more time to repay the loan if you can’t pay the loan on time. The company can do this in two ways: simply adjust the repayment date or give you a rollover.
A rollover does the same thing as the first choice but involves creating a new agreement for the old loan’s repayment. This new agreement typically means higher repayment costs, so be careful when asking for a rollover.
Also, when a lending company does a rollover, they must provide a page outlining where you can get free debt counseling.
Avoid late fees and penalties
When taking out a payday loan, lending companies can use Continuous Payment Authority (CPA) to automatically deduct repayments from your debit account, which is a convenient and hassle-free way to pay off your loan. And the best part is, there are no hidden fees involved in this process.
However, if your account has insufficient funds, the lending company may request additional funds from your bank, which may come with extra charges. But don’t worry, lending companies will usually notify you beforehand via email, call, or SMS, so you can avoid any unnecessary charges.
It’s important to note that as of 2015, lending companies can only charge a maximum of £24 for every £100 loan, which means that for a payday loan of £50, you’ll only have to pay up to £12. Additionally, default fees are capped at £15, so you won’t have to worry about being hit with unreasonable penalties for late payments.
No collateral required
Payday loans also have the advantage of having no collateral required. Let’s expand on what this means below.
No collateral or security required
Unlike collateralized loans, such as mortgages or car loans, you won’t have to pledge something valuable to be eligible for a payday loan. In most cases, lending companies only ask for your ID and pay stub to secure the loan.
No risk of losing assets
One of the advantages of payday loans is that you won’t have to worry about losing any assets since these types of loans don’t require any collateral. This means that you can apply for a payday loan without putting any of your personal property, such as your house or car, at risk. Unlike other types of loans, payday loans are unsecured, so the lending company won’t have the right to take any of your assets if you fail to pay back your loan on time. This makes payday loans a good option for those who are in urgent need of cash but don’t want to risk losing their valuable assets.
Ideal for people with poor credit
As mentioned, lending companies rarely consider credit scores when approving a payday loan. However, they may still consider this when applying interest rates. The higher the applicant’s credit score, the lower the interest rates may be.
Sum up
Payday loans are helpful financial contingencies. Not only are they easily accessible even for those with little to no credit score, but you can also use them for almost any expense.
Moreover, most lending companies can now process loans online, so you can quickly apply for and repay your loans. Also, unlike other high-value loans, payday loans don’t require you to pledge your property as collateral.
However, as with any lending scheme, use them only as a last resort or when you can pay them on time. Additionally, it’s always better to consult a trusted financial advisor if you have time.
