What Are Payday Loans?
Sometimes, we need small amounts of money to get through the month of the year. For example, if you want to purchase a laptop, you will probably need some extra cash to finance yourself. Therefore, these types of loans were introduced. Borrowers apply for a small amount of cash which they can pay back when they have the usual, these types of loans have a rate of interest and duration within which you need to pay back the principal amount along with the interest.
As security, borrowers sign a cheque corresponding to the amount they wish to borrow and hand it over to their lenders. The process can be done both offline as well as online. Once they pay back the entire amount to the lender, the lenders hand over the signed personal cheque back to the borrowed. Online payday loans can be for a short time like a month or six months. However long-term options are also available in some cases. If the borrowers fail to honor the terms of the agreement, the lenders can use the cheque to obtain the money that they had lent. Usually, the amount is paid in cash, however, other modes of transactions like a digital transfer can also be used. You can learn more here, in this article about the various aspects of online payday loans for bad credit.
History and General Information about Online Payday Loans
Payday loans were not very popular before the 1990s. The 21st century has witnessed a rapid increase in these types of money transactions. Due to the increasing cost of living, many people have been forced to borrow money to finance themselves.
In 2006, payday loans became very common. People realized that it was incredibly easy to borrow some money for short-term usage. These transactions often have more linear rules and regulations than other types of loans. Slowly and steadily the concept of payday transactions spread throughout the world.
In 2010, people not only started to rely on banks for installment loans but they were also attracted to online payday transactions. With the evolution of businesses and industries, this type of transaction gained immense popularity among the masses. Entrepreneurs and students were impressed by the concept and soon they began to borrow small amounts of money from lenders that they could pay back within a month.
An important point to remember is borrowing short-term money may not be the best idea for some people. Studies have shown that online payday loans have contributed to economic setbacks and this type of transaction has been banned in several countries. The United States has taken strict actions against many lenders who allowed short-term lending and currently, 15 US states have prohibited this type of transaction.
Low-income groups and neighborhoods have been greatly attracted by this type of loan as they can use the money to pay rent or buy appliances that they would not be able to afford otherwise. Lenders who allow this transaction can be easily accessed and money has often broken the law to avail of this type of offer.
Advantages of Online Payday Loans
1. Bad credit? No problem
Payday loans can be borrowed even if you do not have the best financial record. Unlike installment credit, these transactions do not care much about how your track record has been. Organizations that allow short-term transactions like these are less finicky and allow some amount of flexibility. If you pay your debt in time you can easily avail of this offer over and over again. Even if you fail to repay the money within the stipulated time, far less strict actions will be taken against you. If you are someone who does not manage his finances adequately you may want to think carefully about the payday option.
2. Lenient Agreements and Minimal Paperwork
If you require some money quickly or for an emergency, payday transactions are the perfect option for you. You can collect the money fast as there is no need to wait for days to get your papers approved. Usually, the lenders do not ask for many details and they happily lend money as long as they have your cheque. When you receive your salary, you can pay back the amount. Not many documents or papers are required to borrow money.
Disadvantages of Online Payday Loans
1. The Expensive and High Rate of Interest
Though the idea of online payday loans may sound very attractive, the process has several drawbacks. The lenders charge an incredibly large amount of interest that may be quick and difficult to pay back. You may think that the quick money is a blessing but it is a curse in disguise. You will end up paying a lot more money to your lender due to the rate of interest than you would have to pay if you borrowed installment loans.
2. Bad Habit
Once you get into the habit of depending on short term transactions to pay your bills or rent it is difficult to give it up. You will be sucked into an unending loop of borrowing and repaying the money. These transactions drain out whatever savings you may have had. It becomes extremely difficult to achieve financial stability if you get used to engaging in this type of lifestyle.
3. Unforgiving Lenders
When it comes to this type of transaction, lenders become very ruthless. If you fail to repay the debt within the time, they may start disturbing you in unpleasant ways. They may come banging your door or wake you up with phone calls in the middle of the night. Once they have the upper hand, they can keep adding terms to your agreement and make you extremely miserable. Sometimes, if you really infuriate your lender, he can drive you to court as well.
Every concept has its drawbacks and benefits. It depends upon how you utilize the opportunities that you face in your life. Payday loans are meant for people who are confident and know that they can clear their debt within the stipulated time. Exercise a certain amount of control on yourself if you indulge in offline or online payday loans.