Payday loans are a popular option for those needing quick cash access, with as many as 12 million Americans taking them out yearly.
You can use them for various things, such as for emergencies, to repay debt, or simply to help when you’re short on cash. Payday loans are popular because they’re quick and easy to apply for, have minimal requirements, and are easy for those with bad credit to get a loan.
However, they remain controversial because of high interest rates and stories of people trapped in a cycle of payday loan debt. We dig into the pros and cons of payday loans and explore some payday loan alternatives, such as personal or installment loans.
Pros of Payday Loans
Quick and Easy to Get
One of the top pros of payday loans is that they’re quick and easy to get. The applications are usually within minutes online; you can sometimes get the cash on the same day you apply. This makes them popular for emergencies when you quickly need cash to cover a sudden car repair or medical bill.
Most payday lenders have minimal requirements: Usually, you must be 18 or above, have proof of regular income, proof of ID, and a checking account.
You Can Get Approved With Bad Credit
Though it may depend on the lender, many payday lenders don’t require a credit check when applying. That’s why payday loans are popular for those with a low or no credit score. If you have been turned away or don’t meet the requirements for other types of loans, a payday loan may be one of your only options.
To apply for a payday loan, you usually only need to show proof of a regular income to make the repayments.
Cons of Payday Loans
High Interest Rates
A huge con of payday loans is that they have some of the highest rates of any loan product, which means they’re one of the more expensive forms of debt. This can make them tough to pay off, leading to more debt.
Easy to Get Into a Cycle of Debt
When someone struggles to get out of a payday loan, they sometimes take out another to repay it, quickly leading to a debt cycle. If payday loans are the only credit you can get, it may feel like the only option if finances are tight and it’s easy to get stuck in a cycle.
Short Repayment Terms
Payday loans are small loans you repay by the time your next paycheck comes in, but this may be inconvenient for some. With such a short period to repay your loan, it’s easy to see how people get hit with high interest charges when they fall behind on payments.
It Can Lower Your Credit
If you fall behind on payday loan repayments and the lender arranges a third-party collection agency to collect payment, this will impact your credit score. While payday lenders don’t report to credit bureaus, a collection agency will, and this will appear as a red flag on your credit report to other lenders in the future.
Alternatives to Payday loans
There are plenty of payday loan alternatives. Some of the most popular alternatives include getting a pawnshop loan, using an overdraft, or applying for an installment loan.
- Pawnshop loans: With a pawnshop loan, you take an item of value to a pawnshop as collateral in exchange for a small loan amount. You then make repayments until the loan amount is paid off, and then you can take your item back. If you fail to make repayments, the pawnshop is free to sell the item to get their money back. These loans typically have few requirements, so they’re easily accessible.
- Overdrafts: If there’s no money in your account, you can use an overdraft, a short-term loan from the bank. Interest is typically high and charged daily, but this will depend on whether the bank has already agreed to the overdraft.
- Installment loans: This is a type of personal loan where your loan amount is split into installments with interest. This stretches your loan over an extended period to make payments more manageable.
Apply today
Installment loans offer a more convenient alternative to payday loans because you can spread the payments over time. Jora Credit also offers loans for bad credit borrowers who would struggle to get a loan elsewhere.
Learn more about Jora Credit or apply today to see how much you qualify for.