Payday loans are a type of short term loan that often gets repaid by a borrower within 14-30 days. They are most commonly used to pay for short term purchases, where the borrower does not have the funds available immediately.
A report conducted by the California Department of Financial Protection and Innovation, found that in 2020, payday lenders in California made almost 6.1 million loans, totalling $1.68 billion, which was made up of more than 1.1 million individual customers. Online payday loans accounted for just over a third of all the loans (2.06 million). With such a large number of people taking out payday loans each year, we look into the reasons why borrowers would want to get a payday loan and what are the pros of cons for this type of loan.
What Are Payday Loans?
Payday Loans are a very easily accessible type of loan, that can be borrowed both from a payday loan store or from an online platform. If a borrower fits the correct criteria, the funds request can be approved in a matter of hours, and paid into a verified checking account on the same day. These types of loans can be used for a variety of circumstances, including weddings, funerals, a down payment for a car, or even medical bills, which could normally be quite a long process if taken out via a bank or credit union.
Why Would I Take Out A Payday Loan?
A common reason why an individual looks to take out a payday loan is down to the simple fact that they may not be able to get a loan from a regular bank. One key factor that banks look into before approving someone for a loan is credit score, and if an individual has a bad credit score, it can be much more difficult to get approved for a loan from a traditional bank than a payday lender.
Bad credit loans can be taken out via these types of lenders, much more easily. However there are certain eligibility requirements such as that:
- You must be over 18 years of age
- You need to be a US citizen
- You need to make a steady income of at least $500-800 a month
- You need to have a checking account for the funds to be deposited into
Where Can I Get A Payday Loan?
Payday loans are available in over 30 states across the USA, including California, Kentucky, Texas, Alabama, and Mississippi. A lot of these states have different rules and regulations regarding the length of time a payday loan can be taken out and also the maximum loan amount. More information can be found in the table below:
|State||Length of time||Maximum loan amount ($)|
|California||Up to 31 days||300|
|Tennessee||Up to 31 days||500|
Payday loans within these states can be applied for online through sites such as Finger Finance, that connects a borrower to over 50 direct lenders, to match the loan enquiry with the best loan provider, which can all be completed on the same day, if you do need to borrow money immediately.
Are There Any Downsides Of A Payday Loan?
With payday loans being a simple way to borrow money online, there are people who have their reservations about them. The main difference between a payday loan and a traditional loan is the interest rate, which can be significantly higher than a regular loan. Of course, a payday loan is readily available for most people, which can be taken out on the same day, even if the individual has a bad credit score, so you would expect the interest to be higher.
Payday loans can in fact be seen as a safer alternative to other types of loan systems such as revolving credit, as once the loan is paid back, there is no more interest to pay, whereas with revolving credit, such as a credit card, you are able to continually take out credit up to a limit, which makes it easier to become in debt with the credit provider in some cases.
What Are The Positives Of A Payday Loan?
If you are looking for fast cash, which can be in your account on the same day, this is one positive of a payday loan. Providing that you are honest on your application and meet the eligibility criteria of the lenders, then you should be able to get a loan with almost instant approval. For people who need to make a purchase instantly, these types of loans can be very attractive.
In conclusion, millions of people take out payday loans every year, as they need quick funds deposited into their bank account as quickly as possible. Payday loans if used incorrectly can of course lead to debt, but the same can be said to any other type of loan that is not paid on time. If they are used correctly however, these loans can be a short term solution to solving an important problem, and provide funds when most needed.