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Currently, payday loans have already turned into a vital type of financial help for millions of people worldwide who face various types of unexpected expenses. Even though thesesmall-dollar loanshave garnered their fair share of controversy, they remain a tremendously popular choice for a diverse range of borrowers. Therefore, in this post, we are going to discuss the most important reasons that usually make individuals seek payday loans and other useful issues concerning this credit type. Please, get the details below.
What is a payday loan in simple words?
In simple words, an online payday loan is a small and temporary loan you can get from a lender. Therefore, a person borrows a small amount of money, and in exchange, pays a fee. These loans are usually easy to get. However, financial experts warn you that they usually come with very high interest rates. So, be ready to pay back a lot more than you borrowed. Statistics provided by credit experts show that people often use payday loans when they have no other options to get cash urgently.
List of the main reasons why people take out loans
While working on this post, we have consulted with reputable credit and financial experts. Their recommendations helped us to understand the key motives of why people resort to this credit type. We truly hope they will be useful for you.
- Various emergency expenses. First and foremost, payday loans are commonly used to cover a wide range of unexpected emergencies, such as medical bills or home repairs.
- Rent payment. People often resort to payday loans to make rent or mortgage payments when they face foreclosure or eviction.
- Utility bills. Statistics show that individuals may take out payday loans to prevent the disconnection of such essential services as gas, electricity, or water.
- Avoiding overdraft fees. In many cases, when individuals can’t cover their expenses, they make use of payday loans to prevent costly overdraft fees on their bank accounts.
- Unpredicted income loss. A sudden job loss or reduction in work hours can leave people without enough money to cover basic living expenses. Thus, taking out a payday loan may be a reasonable decision in this case.
- Food and groceries. Credit experts have explained that payday loans often help put food on the table for a struggling family.
Immediate bills after a move. You know that when you move to a new place, you often face such initial expenses as security deposits and utility costs. In this case, swift loans may help you greatly. - Avoiding fees. Late payment fees on credit cards, loans, or other bills can accumulate quickly. Therefore, individuals often use payday loans to avoid these penalties.
Debt consolidation. Credit experts also point out that many people actively use this loan type to consolidate various existing debts. However, it can be rather risky owing to high interest rates. - School supplies. Parents may take out quick payday loans to ensure their children have the required school clothing and supplies.
- Various family emergencies. Such unforeseen family emergencies as a relative falling ill may require travel or financial assistance, which makes people get this loan type.
- No option to get traditional credit. Individuals with limited or poor credit history may turn to payday loans because they can’t qualify for traditional loans or credit cards.
- No savings. Lack of an emergency fund can leave people with no other option but to resort to payday loans when financial problems suddenly occur.
- Preserving reputation. Payday loans can be a way to maintain a good reputation and credit score by ensuring timely payment of rent, bills, or any other financial obligations.
- Prescription medication. Payday loans are sometimes sought to purchase necessary prescription medications when health insurance doesn’t cover the costs.
Are there any pros of payday loans?
Absolutely, yes! Payday loans have both benefits and disadvantages. Below, we have listed the potential pros of payday loans:
- Quick funds. Payday loans often provide swift access to cash in emergencies.
- Small amounts. Payday loans are typically for relatively small amounts. In most companies, the most popular loan amount is $500 or $1,000. This option helps borrowers avoid taking on more debt than necessary.
- Short-term obligation. These loans are short-term owing to your next payday. Therefore, you are not locked into a lasting financial obligation.
- Minimal documentation. The application process is straightforward. People should usually provide only basic documentation, such as proof of income and ID.
- No collateral is needed. Lenders never oblige borrowers to put up assets like their cars or apartments as collateral.
- Flexibility. People can use payday loan funds on everything they want. A lender never limits this option.
- Credit score protection. Payday loans can help you avoid late payment penalties on bills, which protect your credit score.
Cons of payday loans
Despite the evident advantages, this loan type has the following drawbacks:
- Financial stress. The financial strain caused by payday loan repayments can lead to stress, which worsens the exact financial problems borrowers are trying to solve.
- Short repayment period. Payday loans classically require repayment within a few weeks. It often puts pressure on borrowers.
- Impact on credit score. Even though payday lenders often don’t report to credit bureaus, unpaid payday loans can still harm your credit score if the debt is sold to a collection agency.
- Unfair lending practices. Some unreliable payday lenders often use such predatory practices as hidden fees, aggressive collection tactics, and misleading T&C.
Final thoughts
As you have already understood, payday loans mostly serve as both a controversial and essential component of people`s finances. In this guide, we have provided you with the most important reasons that drive individuals to this financial option. In particular, this loan type provides a lifeline for those who may have limited alternatives. So, you should always think about alternative financial solutions and build an emergency fund. Despite this, payday loans daily help millions of people worldwide to get the necessary finances for various types of current needs. All this makes this loan type a popular financial option that shouldn’t be ignored when needed.
The news and editorial staff of the Monterey Herald had no role in this post’s preparation. This is a paid advertisem*nt and does not necessarily reflect the official policy or position of the Monterey Herald, its employees, or subsidiaries.
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