Many companies offer payday loans online that cater to consumers who need short-term loans with no credit check. Many people look for bad credit payday loans simply because they cannot qualify for financing any other way. Whether you need fast cash without the hassle of all the paperwork, or a small amount of money to tide you over until the next payday, it’s important to understand the pros and cons of instant payday loans.
What is a Payday Loan?
A payday loan is a small personal loan consumers take out from a personal loan store or center for a short period of time. It is referred to as a “payday loan” because it was originally intended to help consumers with sudden unexpected needs between paychecks. Once the borrower gets paid, he or she pays back the payday loan store or center.
Online Payday Loans Pros
Obtaining an online payday loan or loan from payday loan lenders is quick and easy. Consumers usually receive an answer to their request for instant payday loans within minutes, and don’t have to have good credit to obtain a small amount of money, (usually $100-$1500). Consumers don’t need to mail-in or fax an application, or supporting documentation to the payday loan store either.
Payday Loans No Credit Check
Online payday loans are great for consumers who don’t have a lot of time to stand in line at a payday loan center to get short term instant pay day loans. All information is provided and filled out online for the convenience of the loan applicant. Borrowers can obtain small amounts of money from payday lenders that conventional lenders, including banks and finance companies would not otherwise lend.
These are essentially bad credit loans or no credit check payday loans. The federal government regulates these types of loans just like any other loan product: http://www.consumer.ftc.gov/articles/0097-payday-loans.
With easy payday loans money gets deposited into a checking or savings account within hours, or days of applying for the money, and the lender doesn’t require the applicant to explain what the money will be used for.
Payday Loans Direct Lender Cons
While payday loans might sound enticing to some borrowers, there are several drawbacks associated with this type of lending. One of the biggest disadvantages to payday loans is the percentage of interest applied to the loan. Typically an interest rate for an unsecured loan from a bank can be as little as 7 percent APR. A payday loan however, can charge from 300 to 900 percent for even a small amount of money.
It is expensive for payday loan companies to create short-term loans for such small amounts of money. The return therefore must be high to cover the costs. Because these companies don’t base lending decisions on credit history, they also run a much higher risk of default than banks and other lending institutions.
Many payday loan recipients fail to pay the original loan amount by the date of maturation. Other bills and expenses come due at the time of the payday loan and consumers get caught up in a vicious cycle of borrowing.
Once payday loans get renewed, interest charges and fees begin to add up and borrowers feel trapped. Some companies that offer payday loans online can operate under deceptive lending practices as well. In some instances lenders purposely hide charges from consumers, finding loopholes in contracts to trap people.
While short-term, high interest loans may not appeal to some borrowers, they do serve a purpose for consumers who need a small amount of fast cash without a credit check. For people with bad credit and others who simply don’t have the time for conventional loan processes, payday lending can be a way to obtain funds at a moment’s notice. By understanding how loan products work, you can get the best terms available to consumers.