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While you’re out for a midday stroll you come across this enchanting little boutique, and within its beautifully decorated walls you find an item – a beautiful formal gown, decorated in lace and silk – that you simply must buy. Not wanting to put the purchase on one of your high interest credit cards, you go to pay with Interac until you realize something: you don’t actually have the money required to buy it.
You ask the store clerk to put it on hold for you and you rush home. Once you are at home, you get on your computer and make an online application for a payday loan. You return to the store the next day, cash in hand, and take home your dress. The loan that you obtained is a short term loan- you’ll pay it off in a few days when you get your paycheck.
What Is A PayDay Loan?
A payday loan is when a lender provides you a short term loan, payable on the day that you receive your paycheck. The terms and conditions of payday loans vary wildly, depending on your credit, income, and the lender that you’re obtaining the loan through.
Risks and Advantages of PayDay Loans
PayDay loans are a good way to be able to finance an item that you can’t afford because of your paycheck schedule. So long as you pay back your payday loan on the agreed upon date (and avoid taking out another loan to pay it off).
Some advantages include:
- Quick access to the money that you need.
- Little or no security/collateral required.
- Short payment terms.
- Low overhead.
- Immediate access to the loan principle.
PayDay loans are notorious for placing unreasonably high interest rates or fees on the loan terms, so make sure that you are completely aware of the conditions of your loan. Read the entire contract, including any pages of fine print, so that you know all of the terms, fees, and payments associated with the loan.
Disadvantages of payday loans include:
- Uncertain interest rates. Unlike a home loan or personal loan, there is little regulation or standardization among payday loans. Always be aware of your interest rate.
- Loan payment fees or hidden charges. Not always, but sometimes.
- Major financial obligation to pay off the loan on your payday.
2 comments ↓
The priority of any borrower is to save money by choosing a cheap loan. A cheap loan involves less rate of interest and, therefore, is less demanding on the budget of the borrowers. Their various financial needs can be easily met with cheap loans that are widely available in the market.
Effective loan shopping- Once you have decided which loan product you need, hunt extensively in the market and compare loans taking the APR, loan amount, loan tenure, security required, arrangement fees and other such charges into consideration. Comparing and analysing different loans will help you find the best loan that suits your profile.
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