Pros and Cons of Payday Loans Direct: What You Need to Know Before Borrowing - Kalkine Media

October 20, 2023 01:20 AM AEDT | By Mashum Mollah (Guest)
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When faced with an emergency expense, you may not know where to turn or how you’re going to pay for it. This is where direct payday loans can be useful. If you’re struggling to make ends meet between paycheques and you need extra cash to help you deal with an unexpected cost, online lenders could offer you relief.

Understanding Payday Loans

Payday loans can be a lifeline for those who need access to cash to deal with an emergency situation. Payday loans are used to bridge the gap between paycheques, to help you deal with an expense that your income may not stretch to cover. They typically offer small amounts to borrowers that will need to be paid off in as little as a month – the borrower's next payday. There are a range of benefits that come with this type of short-term loan, but there are also factors that you’ll need to consider when making the correct decision.

Access to funds

Unlike traditional loans, payday loans give you access to funds quickly. When applying for a loan from your bank, you may have to endure a lengthy application process and wait weeks for approval. Alternative online lenders offer a fast application process with minimal information required and can approve your application in as little as 24 hours. This is essential when it comes to having access to cash to deal with a time-sensitive emergency.

No Credit Check

Another benefit that comes with payday loans is that they do not require you to have a good credit score. When applying for loans with traditional lenders, those with less-than-impressive credit will struggle when it comes to approval. Payday loans direct lenders base their approvals on affordability rather than how you’ve managed your money in the past, so if you can show you have the income to pay back the loan in full, you’re likely to be approved for a loan of your choice, regardless of credit score.

Easy Application Process

Payday loans allow you to save time by completing an application process online when it suits you. With no need to attend appointments at the bank, you can complete your application at home, at your leisure. The process itself is quick and easy and requires minimal documentation. Lenders are likely to ask for proof of employment and income to help them make their decision.

Flexible Use of Funds

Your lender will not set out any guidelines for how you should or shouldn’t spend your loan. You can use a payday loan to cover anything you need, whether that’s a vet or medical bill, home repair, or unexpected charge you’d not accounted for. There are no restrictions on how to spend the money, just make sure you’re using it to cover an emergency.

Factors to Consider

There are a few factors to consider when it comes to payday loans that you should know about before deciding to apply. Here are a few cons you need to be aware of:

High-Interest Rates

Because of the short repayment period and no need for a credit check, payday loans come with a higher interest rate, as they can be more difficult to pay off in a short amount of time. Because these lenders don’t require a good credit score, they increase their interest rates to ensure borrowers who may have struggled to pay loans in the past, repay their loans on time and in full. Be aware of interest rates before you apply.

Short Repayment Periods

When applying for a payday loan, you need to be aware of the short repayment period. They typically need to be paid off on the borrower's next payday, so you need to make sure you can afford to pay the loan back, including interest and fees, in full. Look at your monthly budget and decide how much you can realistically afford to borrow before you apply, to reduce the chance of falling into financial difficulty.

Debt Cycle

Because of a payday loan’s short-term repayment period, borrowers may find themselves slipping into the debt cycle. This means taking out payday loans to cover their previous debt, trapping them in a cycle. Be aware of all terms and conditions before applying, as well as the potential pitfalls you may be faced with.

 


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