You have probably come across an online ad for quick loans or even seen one or more payday loan storefronts at some point if your life.
These loans are usually issued to people with low incomes and are customarily marketed by lenders to solve unexpected financial emergencies.
What Exactly Is A Payday Loan?
This is a short-term credit given out to people with lower income levels to the users with a poor credit scores. Payday loans tend to have a higher annual percentage rate return since they are used to fund urgent financial situation and the users who are not eligible for obtaining the conventional loans.
Who Uses Payday Loans?
Surprisingly, many people use payday loans. Approximately 12 million Americans are using the payday loans each year. On average, these loans are used by young adults aged between 25 to 49 years compared to the other age groups. The most senior citizens aged 70 and above least likely use payday loans.
69% of the people who are applying for the payday loans use the cash to cover the recurring expenses such as food, rent, and other credit utilities. It is a clear indication that the people who use this loan have a constant ongoing shortage of cash as well as the need for more money. Although many lenders market their loans for quick fixing of emergencies, only 16% of the users use the borrowed money for that purpose.
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Most Frequent Emergencies Which Make People Get The Payday Loans
- Payment of everyday expenses such as food, rent, and utilities
As earlier mentioned, many payday loan users use the loan to settle their basic needs. It is because sometimes the household income becomes lower than the household expenses.
- Settlement of huge repair bills
Your car might break down at a moment when you are financially drained. Keeping your vehicle under regular mechanical checkup doesn’t mean that you can’t get an unexpected breakdown. In that situation, many people take the loan to help them out.
- Medical emergency
A medical emergency is a huge expense especially if you don’t have any health insurance. For this reason, medical emergencies are among the top reasons why people seek to obtain payday loans. You can, however, avoid this by getting health insurance.
Sometimes you can check your bank account balance status and realize that you have overdrawn. Your financial institution might charge you for the overdraft, and that’s an expense that you can avoid by taking a payday loan.
Bills is another reason why many people consider the payday loans. They include water, electricity among others. People can, however, reduce their bills by practicing water saving methods as well as other power saving methods which do not consume much power.
Going through the unemployment period with no one to support you financially can be a stressing moment. At certain times, you can find yourself looking for all means to make ends meet including looking for payday loans.
Differences Between Payday Loans And Usual Loans
- Approval – payday loans can be found from online websites, and can also be given by individual lenders. They usually get approved and disbursed within a day. On the other hand, the bank takes two days or more to be disbursed.
- Interest rates – the interest rates for payday loans is relatively higher than that of the usual bank loans. It is because they are risky since they are sometimes given to people with poor credit history.
- Repayment period – payday loans involve small amounts of money and therefore have a short-term repayment period. On the contrast, bank loans have longer repayment terms since they require more significant amounts of credits.
- Credit history – payday loans are suitable for everyone, including people with poor credit scores. On the other hand, bank lenders are quite strict when giving out their loans since they first consider the ability to pay through the credit background.
Payday loans are reliable short-terms financial aids which can save you from serious emergencies. They have short approval duration, and they can be given to anyone with a poor credit history.
However, it’s worth noting that their interest rates are very high as compared to the other loans.
Tip You should consider payday loans as your last option since the can quickly get you into a borrowing debt spiral if you take them continuously.