Payday loans are a source of financing for many people, particularly those who don’t have access to more established forms of financing. While payday loans sometimes have higher fees than other forms of financing, they are a good option for certain segments of the population. There are several items to consider with whether or not an individual should obtain an payday loan or if they should pursue alternative forms of financing instead. Careful consideration of payday loans is needed, including comparing these options for other financing options out there in order to efficient financing solutions for an individual.
What is a Payday Loan?
A payday loan is effectively an advance of your next paycheck. An borrower of a payday loan will obtain financing for a short period of time, typically a month or two, and these loans are secured by the next paycheck they receive which should be used to repay the loan proceeds. While this is the structure of the typical payday loan, there is some flexibility in the nature of payday loans, with payments often extending into future periods similar to other forms of loans. Payday loans typically do not require extensive paperwork to obtain and can provide quick and easy financing to individuals in need of financing. Interest rates on payday loans can be high, as compared to other financing forms, but the short duration of payday loans often make this non-impactful to individual borrowers of payday loans.
Who are the Typical borrowers of Payday loans?
The typical borrowers of payday loans are those who are underserved by banking and financial solutions and are unable to obtain other forms of loans. Often, borrowers of payday loans have poor credit histories and scores and are unable to get traditional loans. Because payday loans require limited paperwork, they can provide money quickly to borrowers and are often used when an emergency arises in which cash is needed quickly to cover the financial needs of an individual.
Who Should Pursue Payday Loans?
Payday loans are not something that everybody should use. Those who have good credit histories, who need to borrow for a longer period of time, and those who don’t need money quickly, should not pursue payday loans. Payday loans are best suited for those who have an immediate need of financing, such as for a medical problem or a home repair, and don’t have available cash to handle these needs or have a bad credit score for normal loans. You can read more on that specific topic here.
Financing under payday loans may be used as a bridge until longer term financing is obtained, for those finance needs that are immediate in nature. Payday loans can make for a great option for many but should not be used without detailed consideration of alternatives means of financing.