In the current economic crisis, it is getting increasingly difficult for people to make ends meet, and many are resorting to borrowing loans. However, banks have rigid criteria when it comes to lending money. This is why a growing number of people are borrowing payday loans.
Payday loans are short-term, unsecured, high-interest loans that serve as a quick relief for day-to-day or unexpected expenses. They can charge around 391% to 521%, which is why despite their accessibility, they are often advised against.
However, about 12 million Americans borrow payday loans annually, and the number continues to rise. Here are a few reasons why?
The procedures to obtain traditional loans are lengthy, complicated, and require a lot of paperwork. On the other hand, Payday loans are easily accessible and can be procured quickly. You can apply online and have the money in your bank account within 24 hours. This helps with emergency expenses such as hospital bills and consumes less time.
Payday loans are now safer than they were ever before. Government authorities have been regulating payday lenders to protect borrowers from exploitation. This includes interest caps, penalties, and cost transparency in loan agreements.
3. Fewer Requirements
Traditional loans come with stringent criteria that payday loans lack. In contrast, payday loan lenders are not concerned with whether the borrower has a good or bad credit history. Their main area of concern is if the borrower has a stable stream of income so that they can pay back their loans. For instance, My Canada Payday just requires its borrowers to be employed and have a monthly income of a minimum of $1,000. Not paying back a payday loan will negatively impact your credit score all the same, however.
4. Competitive Market
There are many payday lenders in the market, including traditional payday lenders and those who provide loans on installment plans. They offer various deals to attract more borrowers. So, borrowers have many options to choose from, and no monopoly can exploit them.
5. Collateral Free Loans
Many bank loans and mortgages are secured against collateral. A collateral is a valuable asset, like a car or a house, and the lender can pledge it, which means that if the borrower cannot repay their loan, the bank will take possession of the asset. Many individuals may not have assets they can offer as collateral or may not want to go down this route. So, they opt for payday loans, as they do not have such requirements.
6. 14-Day Cancelation Period
Since taking out high-interest loans is a risky commitment, payday borrowers have time to reconsider and change their minds. If a borrower chooses to cancel the loan, they must repay the borrowed amount and any interest accumulated within these days. The lender will have to refund the borrowing fees or any other charges the borrower has paid.
7. No Prepayment Penalties
A prepayment penalty is a fee charged by lenders for paying back a mortgage loan early. This is to disincentivize borrowers from paying back their loans early so the lenders can procure more interest over a more extended period. Payday loans don’t charge a prepayment penalty so that you can repay your loan without the fear of penalization.
Banks are known to be discriminatory in lending regarding religion, race, sex, disabilities, and national origin. This has hindered many minorities and disadvantaged groups from receiving financial help to start businesses or pay for education and daily needs. Payday loans face no such issues. This is why a large part of the population exclusively borrows payday loans.
9. Helps Save Money
If you fail to make a payment on time, such as paying a utility bill or credit card bill, the late fees can accumulate and cost you more than you can afford. Taking out a payday loan will help you finance your expenses on time. Due to strict regulations, you will not have to pay an unreasonable amount of interest as well. This is why many people take out these short-term loans to avoid other forms of debt and save money.
10. Gives the Borrower More Control
Payday loans give borrowers the power to determine the amount they are borrowing and the repayment terms. The lenders are obliged to provide the consumer with complete transparency, allowing them to adjust the terms according to their needs and repayment abilities, such as the length of the loan term. When borrowing from a bank, the borrower has little to no say when it comes to the terms of the loan and may end up in an unwanted position.
Many kinds of loans are available, but there’s a reason for the growing popularity of payday loans. They are easy to procure, have fewer requirements and stakes, and due to public pressure and government regulations, they are less exploitative than they used to be, making them more borrower friendly.
However, there are limitations to what the government’s regulating bodies can do. Payday loans might still lead to growing debts due to the high-interest rate, which may lead to a debt spiral. Do your own research and read the terms and conditions thoroughly before signing up for any loan.