You also may have to wait longer for a bank to decide on your loan application. When you need emergency cash to help you through unemployment, you cannot afford to wait on a standard lender to decide in your favor. Payday loans might be more convenient than standard bank loans, but as we will see later in this article, borrowers pay higher interest rates for the convenience of accessing cash via payday loans.
You have heard the term “jump through hoops.” In the world of emergency cash for unemployed finances, jumping through hoops means fulfilling numerous requirements imposed by traditional lenders, such as banks and credit unions. Payday lenders require little, if any information beyond your name, address, phone number, and type of collateral. You might only need enough cash to help you get through the next two weeks, which means you can put up your last paycheck as collateral to receive instant access to emergency cash for unemployed reasons. One of the most effective ways to limit the requirements imposed by a payday lender is to have an active checking account.
Traditional loans offered by banks include several financial restrictions, such as a limit on how much money you can request. Moreover, failure to pay back a traditional loan triggers higher late payment fees and penalties. Some payday lenders may allow for a grace period before penalizing borrowers for late loan payments. As a first time borrower, if you pay back the first traditional bank loan on time, the lender will increase the limit on a second bank loan request. Payday lenders are more open to issuing higher amount for first loan applications, which gives you access to more cash for meeting emergency financial obligations.
Potentially Improve Credit Score
With short repayment length of terms, payday loans allow borrowers the potential for making several on-time payments within short periods. The result can be several positive impacts made on your credit report (assuming that your lender reports to the payments to the credit bureaus, which may not always be the case). One bank loan, with a repayment term that can last a couple of years, e impression on your credit score. Moreover, over the course of two years, you can experience the disruption of your main source of income. Loss of income quickly turns into one or more missed bank installment loan payments that negatively influence your credit report.
Disadvantages of Payday Loans
The number one disadvantage of taking out a payday loan stems from the inability of a payday loans NE consumer to meet every repayment term. Also, because the repayment term for a payday loan is short, the interest charged by a lender can be higher than with other types of loans.
Standard bank loans require borrowers to repay a clearly defined percentage of a loan each month, with interest accumulating on an annual percentage rate (APR) basis. As one of the more onerous installment loan APRs, credit cards can exceed 30 percent interest charged annually. However, payday loans can soar to an APR as high as 300 percent because of the high cost for the lender.
Payday borrowers do not have much financial flexibility because of the need to receive emergency cash to handle short-term bills. High fees and interest rates can force borrowers to take out additional payday loans to fulfill the payment terms of previous loans. “Payday loans encourage a cycle of debt thanks to high rates of interest, as well as high repayment installments,” says Regina Blackwell, who works for credit counseling service Transformance. “In most cases, the client will be unable to repay the debt by the due date. What happens next? Another costly loan is secured to cover the difference.”