Payday Loans - Pros and Cons

There are many different reasons why someone would consider a payday loan when they are in need of emergency funds for living or other unexpected expenses. Payday loans are generally considered 'high-risk' loans as they have a high percentage of clients defaulting on the payments for various reasons. The following outlines some of the main pros and cons of payday loans, when and how they should be used and how they can repair or damage your credit:

Pros of Payday Loans

Fast Access to Funds
The main advantage to using a Payday Loan is to access the funds from your paycheque before payday. They will allow you access to a portion of your pending paycheque amount once you have generally provided them a proof of income (by showing them previous paycheques that you have received.)
Provides a grace period to obtain better financing
Applying for credit can be a time consuming task, shopping around, providing documentation, in-person meetings and signatures, finally being allowed access to funds, etc. A Payday loan may be a method to ensure payments don't fall behind for a brief period while you are getting your financial affairs in order.
Skip Late Fees
If you are about to be charged late fees by one or several of your creditors, or if you are facing a service interruption and reconnection charge without prompt payment, Payday loans may offer you a way to keep your services going... It's possible that the late fees or reconnection charges may be less than the Payday Loan Fees.
Less Documentation Required
Most Payday Loan companies provide simplified application forms that can be filled out quickly and reviewed in a single visit. Most often you will be required to produce a copy of your last 1-2 paycheques to verify your income before you are approved for financing with a high-risk Payday Loan

Cons of Payday Loans

Payday Loans are EXPENSIVE
Not only are the interest rates on these loans beyond exorbitant, most have ridiculous late fees and penalties if payments are not made per the agreement. Don't expect any special arrangements with these lenders either - they are in the payday loans business to make money, not help you.
Received Money must be used for the correct purpose
Remember, any funds you receive are to be deducted from your next paycheque. Do not consider what you receive to be "found money" or you will definitely end up in a worse position than you are now.
Capped Loan Amounts
Remember, any funds you receive are to be deducted from your next paycheque, so as a result if you need more funds than are available on your paycheque you may need to consider other financing options.

When considering your Payday Loan options beware of the following:

There are many different lenders that you could choose when it comes to finding a Payday Loan, you should be aware of the following precautions when considering a lender for your payday loan:

The Term of the Payday Loan
Beware of companies with extremely short loan terms - if they will only loan you money for 7-14 days and not 30 days if you request it - walk away. Companies that only offer short-term loans are often times extremely high on the fee scale.
Fees and Other Charges
Ask the lender about all the fees, charges, interest rates, and what could be charged if a payment is missed. Make sure you get all those numbers in writing. If they don't have anything to provide you indicating their fees, interest rates, financing charges, etc. WALK AWAY - do not conduct business with a company that will not backup everything in writing.
Maximum Loan Amount
If a payday loan lender is willing to lend you up to the full amount of your next paycheque - BEWARE! They could be draining your finances and forcing you into another payday loan to maintain living expenses.
Consider this situation: you are expecting a $1,000 paycheque in 2 weeks. You go to a payday loan company today and access that whole $1,000. When you receive your paycheque in 2 weeks you have to repay the payday loan $1,000. What are you going to live on for the next 2 weeks until you get paid again?
Lenders that allow the full amount of your paycheque pull you into a vicious cycle of using one payday loan to pay another or survive on since you paid them your whole paycheque. They duped you once into using their services and now you're back every week or every other week like clockwork. It's good business for them but an endless cycle of fees and charges for you.

Do NOT fall into the trap of Payday Loans.

If you are in financial distress and can't find the funds to pay your bills and creditors are calling you for payment.... Give us a call! There may be more options available to you. We are here to work for YOU and you alone.

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