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Payday Loans: Advantages & Disadvantages

loan repayment plan Image Credits: The Economic Times

No one is protected from unplanned spending. Health problems, a broken smartphone, a child tore his only jacket…Situations may be different! But there is only one way out. We urgently need to get money somewhere. Not everyone has a relative or friend willing to shell out the required amount. We can only hope for the help of various financial organizations to get a payday loan. Here a choice arises: is it better to go to an MFI or a bank to get the long-awaited payday credit?

Often, potential borrowers do not see much difference between lenders offering payday loans. Let the principle of operation be the same but the conditions are very different. We talk about the advantages and disadvantages of a payday loan in microfinance organizations and understand when it is worth contacting them.

When Do You Need a Payday Loan?

Sometimes a difficult financial situation forces you to take risks and compromises. Despite the higher percentage compared to banks, MFOs are in demand among various segments of the population. There are microcredit organizations in every city with numerous corresponding online platforms, you can find one online using Moneyzap service. The secret of their popularity is simple: money is given immediately after applying if you want to deal with a payday loan online.

When there is no time to prepare documents and wait for approval from the bank, the decision to take a payday loan online looks quite justified. You will have to overpay for speed but a financial problem will be quickly resolved. Usually, online microfinance organizations take smaller amounts for payday loans than banks. This difference is due to different purposes of the appeal.

As a rule, bank credit is taken to improve the quality of life: the purchase of expensive equipment, repairs in an apartment, rest by purchasing a payday loan or a personal loan. A payday loan is needed to meet urgent needs in unforeseen situations. Delayed pay or an emergency like a broken tooth are the most common reasons for applying to an MFI for a payday loan online.

Payday Loan Online Advantages

There are many advantages when taking out a payday loan. The procedure of applying for a payday loan online is extremely simple and fast. It makes this type of lending the most attractive for a certain part of borrowers:

  • Contact at any time. Online services allow you to get a payday loan when you need it;
  • Money is issued around the clock;
  • The transfer will be sent to an electronic wallet or card. So, a personal visit to the office is not required;
  • No paperwork: the list of required documents is minimal. In most cases, a passport is enough to apply for a payday loan online;
  • You do not need to provide a certificate of income;
  • Instant registration of a payday loan online: the application is filled out and processed much faster than in banks. Money is transferred immediately after receiving approval. It often takes about 10 minutes to complete;
  • High approval rate. When it comes to small amounts, a positive answer comes up 98% of the time;
  • Banks impose more stringent requirements on their clients. Age restrictions and bad credit will become barriers to making money. Microcredit companies are more loyal to borrowers: the presence of minor delinquencies and a low score do not guarantee a failure.

Important to know: The timely repayment of the payday loan will improve the client’s profile. Repeated closure on time will allow you to get approval for a loan from the bank in the future.

Payday Loan Online Disadvantages

With all the obvious advantages, there are also enough disadvantages. Some of them lie on the surface, for example, at a high rate. And many do not even think about others although they should. In addition to the impressive overpayment, there are still many negative aspects when taking a payday loan. If you know about all of them, then the decision on choosing a lender will be as balanced as possible:

  • The rate is ten times higher than the bank rate. The fact is that MFIs indicate the percentage per day. Not everyone understands how much this will amount to in practice. Often borrowers are attracted by a rate of 1%, or even less when banks offer loans at 15%.

Advice: It’s important to understand the difference. A payday loan rate is annual. If you multiply the promised MFO 1% by the number of days in a year, you get an overpayment of 365% versus 10-15% in banks. Calculate the percentage taking into account the number of days of lending to estimate the real overpayment;

  • In a bank, you can take out insurance in case of illness or disability. MFOs do not provide this opportunity. Whatever happens, you have to pay;
  • Most MCCs do not offer gradual repayment options. If you do not pay the entire amount at a time, then penalties will be charged on it. Penalties are tougher than in banks. For the day of delay, you will have to pay about 10% of the loan;
  • Small amounts and terms of payday loans online.

What Experts Recommend About Payday Loans?

Financial literacy experts recommend that you approach loans with MFIs with caution and apply to them only when urgently needed. Expert advice will help you make the right decision. First of all, the client needs to have a clear understanding of how he or she plans to repay the loan to payday. If you add late payment interest to a high percentage, the amount of debt will be significant and will grow day by day.

Getting a micro-loan to pay off another loan is not a good idea. A temporary solution to the problem in the long term will only aggravate the situation. The last but very important rule: payday loans should be taken only in emergencies, and not to buy non-essential items.

Advice: Before contacting an MFI, you should try to find money in other ways, for example, to borrow from friends or apply to a bank. Microloans differ significantly from bank loans. Both have their pros and cons. The main advantages of a payday loan are almost guaranteed approval, quick receipt at any time of the day, and without a certificate of income. Otherwise, traditional loans win.

In the bank, you can take a larger amount for a long time and make insurance. But most importantly, the rate is ten times lower. As a result, it turns out that it is worth applying to microcredit companies for payday loans online only in two cases: when money is needed urgently, or after receiving a refusal from a financial institution with more favorable conditions.

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