Payday loans, also known as payday advance loans, are short term loans designed for emergencies and other unexpected situations. Whether it's avoiding utility service disconnection, pay an unexpected bill or pay for that new prescription, they can be helpful.
However, as with almost everything else, payday loans do come with certain advantages and disadvantages, or pros and cons. Let's take a look at some pros and cons of online payday loans.
1. No credit check: One big advantage of payday loans is that there are no credit checks. If you attempt to get a loan through conventional lenders such as banks and credit unions, you can be sure that they will run your credit. This creates what is known as a hard credit enquiry which takes points off your credit score. With a payday loan, you need not worry about this.
2. Convenience: You do not have to be a "customer" of the respective lending company. You can apply with any company whether online or at a store. Of course, if you have history with a particular company you have the advantage of having your information already on file.
3. No collateral: A job, bank account and proof of ID are often all you need. Some companies do not even require a long work history - a month at your present job may be all you need.
4. Speedy approval: As long as you meet the requirements, your payday loan application is often approved in minutes. Compare this to a bank or credit union where you apply through a customer service agent, who first runs your credit and then if the system does not stop the process right there, passes your application over to a loan officer.
5. No bugging friends and family: If you are the type of person that likes to keep your personal problems personal, payday loans may be just what you need. Of course some lenders require personal references, but they don't always call them up and if they do they don't disclose the reason for calling.
6. Easy and fast comparison shopping: With online payday loans you can apply to several lenders and then pick the one that best fits your needs.
Cons of Online Payday Loans
1. Finance charges: The biggest disadvantage of payday loans whether online or at a store is the hefty interest rates. At $25 for every $100 charged by most lenders, they don't come cheap. Extra care must be taken to avoid getting into a vicious cycle of debt.
2. You don't decide what you will get: The lender decides what amount to loan you depending on your income, work history and other criteria. Some lenders are very rigid and may advance you cash that is far short of what your really need. This is the reason you should apply to more than one lender.
3. Online payday loan lenders deposit funds directly into your checking or savings account. This can be tricky if you already have an overdraft situation. And since funds are usually available on the next business day, you may not be able to solve your problem right away.
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