Payday loans are notorious for charging high-interest rates. Most of the people say that they seduce you rolling over a loan every month that leads to a debt trap. They are considered more expensive than a credit card. The APR of such loans can be three times higher than other short-term loans. Well, there are different reasons for addressing payday loans as a devil.
The fact is any short-term loan can tie you up with a debt trap if you do not understand how they work and if you borrow more than your affordability. The first thing you need to understand is loans help you tide over during financial emergencies. If you borrow money for your discretionary expenses, you will naturally fall in a debt spiral.
Taking out a payday loan is not a bad idea if you have a financial emergency and you have a repaying capacity. As long as you are sure that you will pay back the loan on time, there will not be any problems. The best idea to know your affordability is to use the online calculator to know the total cost of the loan. If you have left money to pay back the loan after meeting all of your expenses, you can avoid falling in debt.
You all know very well that payday loans are highly risky, but several benefits are of these loans that you must know.
Suitable for bad credit
Payday loans have been designed to help tide over people with bad credit history. Banks do not accept applications from bad credit, and hence you have only one option left. Of course, you will have to pay a bit high interest, but you can manage repayments easily if you do not borrow more than your affordability.
Further, applying for these loans is more accessible than others as you do not have to submit collateral, nor do you have to arrange a guarantor. A lender will lend you money without asking you about the purpose. However, they will run a credit check, but it will not leave any hard footprints on your credit report.
Easy to manage
As bad credit payday loans are small, and hence they are more manageable than long-term loans. The length of these loans is usually not more than two weeks. It means you can quickly get rid of the debt. However, some direct lenders allow you to pay back the loan in one month.
There is no risk of falling behind repayment, as many lenders are using modern technology. They link your account with theirs and send in a reminder to reimburse the debt when the due date is imminent so that you can make sure that the account has enough money.
It is a one-size-fits-all loan
This short-term loan can help you meet all of your needs. Whether your car is not up and running or your laptop needs a repair, you can take out payday loans with direct lenders for any purposes. You need to fill in the application form and submit your bank statement. If the lender signs off on your application, you will get money. The lender will not put restrictions on using the loan.
It can save your money
Processing fees, upfront fees, default fees and hidden fees quickly add up the cost of the loan. Some short-term loans carry processing fees, and it varies from loan to loan. Payday loans do not charge such fees. The total cost of the loan will be the total amount you borrow and the interest.
Some people use credit cards to withdraw money – called a cash advance. It also acts like payday loans, but they are more expensive. Cash advances can cost you a small fortune. As you withdraw money using your credit card, the interest starts accruing immediately, and the interest rates can be outrageously high.
Interest rates are capped
One of the significant benefits of payday loans is interest rates are capped at 0.8% per day. It means no direct lender can charge the interest rate over 0.8%. Direct lenders who lend money under FCA guidelines do not charge unauthorized fees. Since the interest rates are capped, your lender will not exploit you.
Payday loans can be a bit expensive if you have a bad credit rating, but it will not throw you in an endless circle of debt as long as you borrow money as per your affordability.