We’ve all seen flashy billboard advertisements and watched television commercials with catchy little jingles about payday loans. These advertisements usually feature a well-dressed and beaming customer receiving a hefty wad of cash from an equally attractive loan provider. But is it really that simple? Can you simply stroll in, get the cash you need, and saunter back out? It can indeed be that simple. But just like any other method of borrowing, there are specific pros and cons associated with payday loans.
Perhaps the biggest selling point for payday loans are that practically anyone with valid employment and a checking account can secure one. People who are turned away by typical loan providers because of bad credit, no credit, or a low income find themselves welcomed with open arms by payday loan providers. Application is easy and many websites compare different payday lenders to find the best option for you (e.g. mypaydayplace.com) If an emergency crops up, payday loans can be a quick and convenient way to get the cash you need to cover those expenses. Payday loans can provide a financial lifeline for people who have exhausted other micro-financing options.
Those who caution against payday loans often cite the high interest rates. And it is true that payday loans are significantly more costly than other types of micro-financing. Annual Percentage Rate (APR) for a payday loan can range from 200-800% (some even go as high as 5,000%) while standard micro-financing loans typically have an APR of around only 7%. Where most people get into deep water is when they default on a payday loan which can cause rapid accretion of penalty fees.
Clearly, payday loans are not something which should be used lightly. If you do elect to take out a payday loan, make sure you only borrow what you need to cover your immediate expenses and pay back the full loan amount in a timely manner.