Guide

Home > Money Guide

Is a Payday Loan the Best Option?

A payday loan is an amount of money borrowed for a short period of time. The amount of money available for such a loan depends entirely on the amount of money the borrower earns in each paycheck. The money is paid back as soon as the paycheck becomes available. There is great debate about whether a payday loan is a wise decision, but, every person must make his or her own decision based on weighing the difference between the advantages and disadvantages of such a loan.

Pros of a Payday Loan

Receive Instantly- The greatest advantage of a payday loan is that it is available immediately once the company has verified banking information. Although no credit checks are required, a checking account is. The payday loan company will verify the information and the money will be made available via a cash transfer to the bank account.

No Credit Checks- There are no credit checks for payday loans. A payday loan can help build good credit with companies that report the information to the three credit reporting agencies. This is one of the best advantages of payday loans for people who have struggled with bad credit in the past.

Fast Payoff- A payday loan is paid off within a month's time. That means that it will not be hanging precariously over the head of the borrower for years. The repayment comes directly from the checking account to insure that it is paid back on time and without worry. The short-term method of repayment with a payday loan is optimum for people who have difficulty remaining on track with long-term loans.

Cons of a Payday Loan

High Interest- Payday loan companies charge an extremely high percentage of interest on every loan they offer. That is the only way for these companies to generate a profit. If a payday loan is inevitable, bear this in mind and make the payments in a timely manner to avoid even higher interest payments and the inability to pay it back.

Cycle Borrowing- Payday loan borrowers who need the money to pay rent, car payments, or other monthly bills often find themselves in the same situation month after month. These are not emergency situations because each one occurs on a monthly basis. Once a person borrows from a payday loan company, it is difficult to break the cycle because the payday loan payment will take the money meant for monthly payments and place it on the payday loan. The borrower unwittingly falls into a cycle of borrowing, never truly making financial progress.

High Penalties for Late/Missed Payments- The penalties for late or missed payments are extremely high with a payday loan. Interest will continue to accrue, late fees will apply, and the payday loan company will take legal action to regain the money that is owed. The credit reporting agencies will be notified and any hope of building credit through the payday loan will be lost.

A payday loan is helpful in some situations. It is not a permanent fix to financial problems though. Weigh the pros and cons carefully to make a sound decision about whether to take one out or not. It can have devastating effects to a credit history if it is not handled with care. People who have poor credit sometimes need the option of payday loan, but, it is only an advantage if proper money management skills have been learned.
 
This has been a guest post from Fon at Australia's premier payday loans lender. If you're looking to solve some short-term financial problems, they might be able to help.