Payday loans gained quick popularity as well as bad reputation. Recently, many financial organizations worldwide specialize in lending payday loans. This type of lending comes with several advantages often considered attractive by people with bad credit score and low income. The biggest plus is the quick request process and the easy access to cash. Background checks and paperwork are minimal as well.

What is a payday loan?

payday loan is a type of a short-term unsecured loan
payday loan is a type of a short-term unsecured loan

What is a payday loan? It is a type of a short-term (often for a period of up to 30 days) unsecured loan. The amount of money you can get from these kind of loans is relatively small. They mature by your next payday, so hence the name. They are also known as cash advance loans, quick loans and quick cash advances. Payday loans usually have huge interest rates. The borrower may not see it that way, given the short term he has for repayment. But calculated on an annual basis, the difference in interest rate between a payday loan and traditional loan is significant.

Lenders of payday loans and procedure

Payday loans are provided by banks and alternative lenders. The procedure is simple – the borrower receives in advance a small sum of money on the obligation to repay the loan in full on his next payday. The repayment includes the principal and the interest charges for the period of lending. The most common way of doing this is for the borrower to deposit a postdated cheque with the lender and to return and pay in person all money due on the maturity date of loan. Should the borrower fail to show up, the lender is entitled to encash the check. If the cheque happens to bounce back due to insufficient funds, then the lender may exercise other methods of collection, including enforcement.

Modern days technology has made applying for payday loans even more attractive and accessible. Most lenders provide online platforms where you simply fill out your information and the amount you need. If you are eligible for the loan, the lender will directly transfer the loan money directly into your bank account or otherwise made available for you. This option is very tempting, especially when you do not have the time to run around to the lender’s physical shop.

  • Repayment is usually via wire transfers.
  • The online loans are referred to as quick cash advances and fast payday loans due to their time saving nature.
  • It takes quite little to request.
  • You will know in as soon as a couple of hours whether  you are approved of a payday loan or not.

Positives and negatives of the payday loans

Positives and negatives of the payday loans
Positives & negatives of the payday loans

All the positives aside, payday loans, the fast payday loans and the online payday loans (as stated, they may have slight differences but are practically very similar) are known to be sometimes a dangerous tool in inexperienced hands. Because they are less complicated and seem easy to repay with their short term, they may put you in an unpleasant position and worsen your finances if you are not careful. As mentioned above, fast payday loans and payday loans in general, regardless of what they are called, have high charges.

Seen as a quick solution for payment of emergency expenses when you are short of money before your next payday, payday loans are often criticized by financial experts and advisers. Any form of fast loans, online payday loans, quick cash advances are looked upon as tools that drain low income citizens, take advantage of their harsh situations and burden them with impossible rates. It is a well-known fact that the usual customers of such small short-term loans are people with financial difficulties.

Another point of contention is the low level of requirements to qualify for a payday loan:

  • You should be at least 18 years old
  • have a recurrent stream of income
  • Sometimes bad credit history is not even considered in the decision-making process

Banks are usually more stringent but financial companies are more liberal when it comes to approval. Some see this as misleading because it makes payday loans seem so easy to get. This makes people in financial difficulties see them as an easy way out of their situation.

Payday loans and online fast loans advertising is also aggressive and misleading. Many financial institutions are accused of indicating only the bright side of their products, using social media and other methods to enhance popularity. A common complaint is the lack of sufficient information on the exceedingly high annual interest rate they charge and other useful information the potential customers should know in order to make a sound financial decision. Payday loans commercials tend to make fast cash advances look too tempting and not risky at all.

Fast cash advances and payday loans may be not so scary if you use them to help yourself in urgent situations and can pay off the loan in a timely manner. Of course, you should not make a habit turning to payday loans too frequently to solve your financial issues.

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