The Benefits and Challenges of Payday Loans

Payday loans are often perceived as the loan of last resort by consumers, lenders and regulators alike. Also known as cash advance loans, payday loans have been used by millions of Americans and show little sign of decreasing in demand.

Despite a number of challenges, payday loans also have several benefits. We will look at both sides of the lending equation to help you make an informed decision.

Benefits

Bad credit is not an obstacle.

Why do people turn to payday loans? Usually because they cannot get credit anywhere else. Commercial banks and credit unions lend people money based on risk. That risk is based largely upon a three-digit number known as a credit score. If your score is low, most lenders won’t approve your application. However, payday lenders usually do not consider your credit score — just your ability to pay back the loan.

Lenders are accessible online.

Some payday lenders set up shop in neighborhoods, but many can be reached online. The advantage of Internet lenders is that you can do business from the convenience of your computer. This means you can fill out an application online, wait for approval and have monies deposited into your bank account just moments later. It just doesn’t get any easier than that.

Full disclosure is offered.

Payday lenders are licensed and regulated by the states. Each state conducts business oversight and requires that certain disclosures be made by lenders to consumers. The states may cap interest rates, restrict loan terms and provide other oversight to the benefit of consumers. You can check with your state’s consumer credit department to verify that the lender you want to deal with is legitimate.

Challenges

Interest rates are higher.

No doubt about it that the interest rates for payday loans are higher, even much higher than other loan options. The reason? Risk. Lenders stand a much greater chance of losing everything by lending to you. This fact should not be taken personally, rather it demonstrates that such lenders are covering a segment of the consumer market others have decided to avoid.

Loan terms may be too short for some.

Take out a payday loan and you will typically pay back the loan with interest within two weeks. Most definitely that short term may not be enough for some consumers. Given that is a “payday” loan, it is designed to be paid off the next time you get paid. You can, however, extend the loan term one or more times as per your state requirements. You will pay interest and a fee for each extension.

Not all lenders operate professionally.

Yes, it is true. There are unscrupulous payday loan operators including businesses that should be shut down. Fortunately, your state government handles complaints and conducts audits, with an eye to correct problems as soon as they are alerted or identified.

Payday Considerations

Clearly, payday loans are not for everyone. Nor should they be avoided because of potential abuse. As a consumer, you should always be informed. Carefully review any loan agreement before entering into a consumer contract.

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6 Comments

  • Charles Crocker says:

    I need this money to repair my car for work

  • Terranya James says:

    Hello I need to pay some bills asap I recent had surgery and feel behind just trying to get caught back up thanx

  • Mary E Ryan says:

    Help I need a pay day loan, whats the best way to find a payday lender.

  • Lanora Barrett says:

    I STARTED WORKING THIS JOB LAST YEAR, NOT KNOWING THAT DURING THE SUMMER MONTHS THEY DON’T HAVE WORK FOR ME SO I DONOT GET PAID.I KNOW THAT I HAVE CREDIT SCORE THAT IS UNEXCEPTALBLE. I WILL PAY THE MONEY BACK. IS THERE A LOAN FOR SEASONAL WORKERS?

  • Cara Massey says:

    I just got back on my feet after losing my job and everything else. I need a payday loan to help me keep temporarily.

  • nicky says:

    I have been applied to alot of payday loans
    and was taken advantage of and i never got my loan…..
    this happened to me 4 months ago….
    I really do need a loan…..but i am looking for a long term loan…..

Payday Consumer Notice:

APR

The APR of a payday loan varies in each state and depends on the lender, the advance amount, fees and terms of the transaction. The APR in our network of lenders can range from 265.36% to more than 700% on 14 day terms.

Implications of non-payment

Implications of non-payment vary from lender to lender and by state regulations. If you are unable to repay your loan you may have one or all of the consequences listed below depending upon the terms of your lender. Fees may include but are not limited to: insufficient fund fees, administrative fees, late fees, non-payment fees, court costs and legal fees.

Collection Practices, Credit Score Impact

Payday Loans are due and payable in full in one payment at the end of the loan term, unless the Lender offers renewals or other repayment options. Make sure to review the terms and conditions of your lender if you fail to pay on time.

  • Late payments of loans may result in additional fees or collection activities, or both. Each Lender has their own terms and conditions, please review their policies for further information.
  • Non-payment of credit could result in collection activities and your account could be turned over to a collection agency. Each Lender has their own terms and conditions, please review their policies for further information.
  • Failure to pay your loan on time could result in your lender reporting the delinquency to a credit reporting agency. This could result in the lowering of your credit score which could make borrowing more expensive in the future.

Renewal Policy

Renewal policies vary not only by lender but also by state regulations. Every Lender has their own renewal policy, which may differ from Lender to Lender. Renewal fees vary by lender. Please review your state regulations and you lender's renewal policy, terms and conditions.