Payday Loans

Recently, payday loan companies have come under scrutiny from the public eye, and have often been deemed as unscrupulous institutions that take advantage of financially unstable individuals. However, these companies are thriving, which shows that the services they are offer are still in great demand. Payday loans, like all loans, come with pros and cons, and it is up to the borrowers to determine what financial solution best fits their individual needs. There are several different types of emergency loans, and knowing how each works is vital.

Payday Loans
Payday loans are considered “emergency” loans, which are intended to sustain the borrower until their next payday. These loans should be used only when necessary, and borrowers should take the minimum amount of money needed. The problem arises when consumers allow their loans to be rolled past the due-date into another term. Because the interest rates on short-term payday loans are often extremely high, this can result in a perpetual cycle of borrowing and rolling over the balance to yet another paycheck. Consumers will quickly find themselves buried in debt if they continually borrow without repaying the balance in full.

Nonetheless, the benefits of payday loans are numerous, including: almost immediate access to funds, no credit check required, minimal requirements for application, the ability to extend the loan terms if necessary, and a wide availability of loan companies both online and physical. These loans are a valuable resource for people who need a little help once in awhile, but should not be relied on for continuous use.

Cash Advance Loans
A cash advance is loan drawn against a credit card. A consumer may withdraw cash (from a bank or ATM) using their credit card, often up to and including their credit limit. Many credit card companies charge a nominal fee for their cash advance services. The interest rate on a cash advance is typically higher than the regular credit card interest rate, but consumers who are able to pay off their credit card bills monthly may be granted a lower rate. As with most credit card purchases, a cash advance must be paid off in full within a month or the borrower can expect finance charges and interest to capitalize on the balance.

Unsecured Personal Loans
Numerous banks and credit unions offer their own versions of payday loans, called personal loans or unsecured loans. These loans usually have much better interest rates and repayment terms than a typical payday loan. Unfortunately, most of these financial institutions require a credit check, which means that people with poor credit will likely be unable to obtain an unsecured loan. Still, a great benefit of a personal loan is the ability to pay monthly installments rather than the assumption that the entire balance will be paid in full upon receipt of the borrowers next paycheck.

Each type of emergency loan has benefits and negatives, and borrowers should explore their options. A payday loan is currently the most popular type of emergency loan, because they are easy to obtain and do not require a good credit score. The companies that provide payday loans are numerous, and many consumers appreciate the anonymity that comes with acquiring a payday loan online. Cash advance and personal loans may require you to sign paperwork in person. Though these loans come with lower interest rates than payday loans, they also have more stringent application requirements, and are typically more difficult to obtain. It is important to remember that all loans come with some level of financial risk, and consumers should educate themselves on the type of loan that will best meet their needs.