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According to a survey, about 80% of Americans are in debt. The debts are inclusive of long term and short term loans, from mortgages to personal deficits.
Payday loans are very popular, not only in the US but in other countries as well. In spite of the slightly higher interest rates compared to bank loans, the industry is growing at an impressive rate.
Why are so many people relying on payday loans?
Quick and Easy to Get
The ease and convenience of acquiring payday loans attract many borrowers. You don’t have to go through a complicated application process that requires collateral, guarantors, and other financial qualifications.
There is a lot to consider when applying for a standard loan. But with payday loans, it’s an easy decision that only takes a few hours to finalize.
Pay Other Loans and Debt
A surprising 69% of borrowers who take out payday loans use the money to settle other debts and recurring expenses. These are bills like rent, credit card bills, insurance, mortgages, and other loans.
Settling bills in this way is only convenient if the interest on the payday loan is lower than the debt due. This is also a somewhat expensive way of extending bills by paying them off with a quick loan, then settling the loan over an extended period.
Because they are quick to secure, payday loans are easy solutions to clearing financial emergencies and unexpected bills. Many borrowers use these loans to finance unavoidable medical and travel emergencies.
Payday loans offer a quick fix to sudden financial strains that cannot wait. Often, these situations catch people unprepared and underfunded; there is only so much money that one can set aside for emergencies.
Bad Credit Score
Lenders never consider the borrower’s credit history in the application. This means that borrowers with poor credit scores are welcome to take out loans as long as they have a paycheck.
Banks and most lending institutions require borrowers to have a good credit score, and some even insist on having a prior financial history with the institution for a specified period. These may be tall orders for people struggling with financial difficulties.
Easy to Manage
Payday loans are much easier to track and manage than standard loans. You only need to know how much you owe and when to pay. If you are unable to pay or need an extension, it is a one-on-one interaction with the lender to work out a reasonable solution.
Most other lenders, on the other hand, are not as flexible. Borrowers have to navigate through dozens of proposals, bank statements, and a host of other documents to justify their financial situation.
Payday loans are a convenient way to get a quick cash injection. But, they are not standard throughout. Lenders have different policies and sometimes slightly different interest rates. The loans are regulated by state law, and each state has its own laws controlling the trade.
Before getting a payday loan, look up the local lenders and learn every detail. We have more informative articles on business and personal finance, browse through our catalog for an interesting read.