Did you know that approximately 63% of Americans have been living paycheck to paycheck since the COVID-19 pandemic hit? Sadly, this can be a dangerous way to live.
One unexpected expense, like a medical or family emergency, is all it takes to throw you into a world of debt. Often, when people are in these types of situations, they consider loans to hold them over until payday.
But, should you get a payday loan online? Or does it do more harm than good? In this article, we’ll be going over some of the pros and cons of payday loans. That way, you can decide for yourself whether or not they’re right for you.
What Are Payday Loans?
Payday loans are also known as cash advances. These are short-term loans for small amounts of money. These types of loans typically come with large interest rates. Specifically, they’re known as usury rates.
These are interest rates that are considered excessive when compared to others on the market. They’re known as payday loans because the loans are typically paid for on the date of the borrower’s payday.
Who Qualifies for a Payday Loan?
Compared to other loans, qualifying for a payday loan is easy. There are only three requirements for these loans, as laid out by the Consumer Financial Protection Bureau:
- The individual must be at least eighteen years old
- The individual must have an active checking account
- The individual must have proof of income and a valid form of government ID
As long as you meet these three qualifications, you can apply for the loan. What’s more, payday loans are approved quickly. Typically it takes less than fifteen minutes to get approved.
Pros of a Payday Loan
Let’s start with the pros of a payday loan. First, you can easily get the money that you need for certain short-term expenses. What’s more, almost anyone can qualify, even people with bad credit.
This isn’t common with other types of loans. Typically underwriting requirements will rule out a lot of the applicants. The process is quick and easy, so you won’t need to spend a lot of time setting the process up.
Paying it is straightforward too. The loan is usually automatically deducted from your account once you get paid.
Cons of a Payday Loan
We’ve seen what’s good about payday loans: they’re quick, easy, and convenient. But, what are the cons of a payday loan? First, they have some truly astounding interest fees.
It’s not hard to find some loans with fees greater than 400% when you compound them on an annual basis. To put that in perspective, it’s around twenty-six times higher than the interest rates that come with a credit card.
Also, payday loans aren’t great for people living paycheck to paycheck. Often you will get in a cycle of using the loan to pay for itself. This can force you deeper into debt.
If you borrow $400 with a payday loan, it will cost you around $550 to pay back. It’s easy to see that payday loans can be quite predatory. So, you should make sure that you exhaust all other options before you consider them.
Should You Get a Payday Loan Online?
As you can see, payday loans are quite risky. They’re often marketed toward low-income people with the hope that they won’t be able to pay. This can lead to a much worse financial state down the road.
However, that doesn’t mean that payday loans aren’t for everyone. If you know for certain that you will be able to pay off the loan when you get your payday check, it’s worth considering.
Just make sure that you’re reserving these funds for financial emergencies. For example, if you’re facing eviction, you could put it toward rent. A risky financial situation is much preferable to homelessness.
It’s also appropriate for someone who was hit with an unexpected medical bill. What you shouldn’t do is take a payday loan for frivolous expenses. Many young people will take out this loan so they have funds for partying.
Or, for online shopping. If this is what you plan on using the loan for, don’t proceed. It’s not worth it to risk your financial livelihood for a brief good time.
What Should You Do With Debt From a Payday Loan?
If you took out a payday loan and weren’t able to pay it back, you’re likely sinking into more and more debt. This is especially true if you have additional loans and debts on top of the payday loan.
So, what’s the best way to get out of this tricky situation. We recommend a consolidation plan. Certain lenders offer you the ability to eliminate payday loans by merging them into one payment.
If you go with the right lender, this can lead to a much lower monthly payment. This gives you a little bit of breathing room when saving to get out of the loan.
If there’s no realistic way that you’ll ever be able to get out of debt, you might want to consider bankruptcy. This comes with a lot of drawbacks. But, for some people, it’s the only way to resolve their debt situation.
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We hope this article helped you answer the question, Should I get a payday loan online? As you can see, payday loans are risky. But, in some circumstances, it can be the best, or only, option.
Just make sure you stay on top of your payment. Otherwise, you could end up in serious debt. If you found this article informative, then you’re going to love some of the other topics that we have.
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