For many people with bad credit history, instant payday loans are a go-to option whenever they’re faced with a financial crisis. These loans can be processed faster than traditional loans and have significantly lenient eligibility thresholds.
However, instant payday loans can expose low-income borrowers to even more severe financial problems than they were before. Typically, these loan products impose exorbitant interest rates and costs.
In this article, we’ll tell you everything you need to know about instant payday loans, from how they work to their pros and cons.
What are Instant Payday Loans?
Instant payday loans, also known as cash advance loans, are short-term, high-interest credit lines that you can secure from various online platforms. Essentially, they’re designed to sustain you until your next paycheck, but you can also use them for other emergency expenses. Typically, this loan’s principal is a percentage of your next salary.
Payday loans work almost similar to personal short-term loans and can be utilised to pay off emergency needs. They’re excellent for cash emergencies such as medical bills, car or house repairs etc.
Borrowers can readily access these loans from various payday loan online platforms. Alternatively, some offer in-store loan services. Their application and approval process is typically easier and faster than traditional lenders.
Pros of Instant Payday Loans
They’re Easy To Access
The easy accessibility of instant payday loans is the main reason why borrowers seek these loans in the first place. Most payday loan lenders guarantee payout within 24 hours after a successful application. What’s more, some cash advance firms offer their online loan services 24/7.
Typically, these loan application processes take less than four minutes, contrary to the traditional loans that take a while to apply. So if you need quick cash, you can always turn loans on Centrelink Australia with no credit check from Gday Loans.
Fewer Requirements
The traditional loan application will typically require loads of paperwork to complete: ID copy, Social Security Number, credit check, proof of revenue, etcetera. On the contrary, most cash advance loan applications require less paperwork to complete.
The following will be all you need to complete your application:
- Be 18 years and above
- A copy of your ID
- Proof of your income
- Have a current bank account
- An active email address for online applicants
However, remember that additional requirements may be put in place by some lenders and banks to protect you.
No Credit Check
Instant payday loans, unlike traditional lenders, are often not concerned with the borrower’s credit history. As a result, they don’t conduct a rigorous credit check, which could decrease your credit score and chances of accessing loans.
However, in most cases, instant payday loans will not boost your credit score even if you repay them on time, preventing you from qualifying for better loan products in the future.
It’s An Unsecured Loan
Unlike traditional auto loans, mortgage, or car title loans, cash advance loans come unsecured. As a result, the lender will not seize your property when you default on the loan.
Even so, most payday loan institutions often demand access to your bank account, and they’ll automatically withdraw their cash from your account when it’s due. Additionally, they can sue you for loan default or send debt collectors to demand repayment.
14-Day Cooling Off Period
Like other borrowing covered by the Consumer Credit Act 1974, payday loans have a 14-day cooling-off period. This implies that you can cancel the loan agreement within the first 14-days of signing it.
However, you’ll be required to pay the loan principal and the accrued interest. On the other hand, the lender will be obliged to refund you all the fees or charges you have paid.
Cons of Instant Payday Loans
Payday Loans Are Expensive
The biggest con of instant payday loans is that it’s more costly than other forms of credit. Some lenders impose exaggerated APR rates of 1,500%, driving up the overall cost of borrowing. Fortunately, there are many loan alternatives with reasonable interest rates that you can explore, especially if your credit score is good.
Considered Predatory
Instant payday loans are considered predatory by many people. They often target people struggling with bills and poor credit history.
Nowadays, the loaning sector is regulated. While this is common to other financial institutions, instant payday loan lenders are more aggressive when pursuing overdue debts. Nevertheless, it’s imperative to scrutinise all your loan options before applying.
Trap Borrowers Into a Debt Cycle
Failing to pay back your instant payday loan on time could potentially trap you in an endless debt cycle. This is a situation where you’re compelled to borrow a loan from other lenders to pay back your current loan. Instant payday loans often come with high-interest rates, exposing borrowers to more risk of being trapped in debt cycles.
Can Access Your Bank Account
The lender will electronically withdraw the recurring repayment amounts from your account in this payment approach. While this is not necessarily appropriate, instant payday loans frequently condition for repayments to be made through Continuing Payment Authority. And though you can terminate their access whenever you feel like it, most individuals feel that this approach is too risky.
Bottom Line
While instant payday loans offer borrowers quick cash when they’re in dire need, they should be the last resort. So in case of financial emergencies, ensure that you explore all your loan alternatives before diving into instant payday loans.
If you have a bad credit history, confirm your credit score and transcripts to know the areas to improve. In some instances, though few, the information may be erroneous, and if correct, your credit score can improve. But whatever you do, find ways to boost your credit score to qualify for safer loans.
