Payday loans often make headlines for unflattering reasons, leading many to question their appeal. Yet, it’s undeniable that the payday loan industry has experienced significant growth, particularly post the 2008 recession. Their popularity in the UK is primarily owing to their ability to provide instant cash during rough financial patches. Despite their obvious drawbacks, the question remains – why are they so attractive to many?
A Solution for Bad Credit
Several lending institutions offer loans with flexible repayment schemes and relatively low-interest rates. But, borrowers with poor credit are often left out in the cold. Bad credit, unfortunately, can accrue easily through missed bill payments or unmanageable credit card debts. Although it’s possible to improve your credit score, it’s a slow-paced process that may seem unattainable if you’re financially strapped.
Consequently, acquiring a traditional bank loan can be impossible when faced with a financial emergency and a not-so-perfect credit score. Most banks run credit checks as a standard process and reject applications immediately upon detecting a poor credit score.
This is where payday lenders come in. Most won’t run a credit check and decide approvals based on income and employment particulars. This gives borrowers with poor credit, including those with a bankruptcy history or frequent loan defaults, a chance to secure the needed funds.
Banks do offer loans to bad credit customers but frequently require collateral in the form of a secured loan. Such a loan could put the borrower’s home at risk of repossession if they fail to meet repayments as agreed. On the contrary, payday lenders offer unsecured loans, saving customers from risking their home!
Quick Cash Availability
A majority of people resort to payday lenders during emergencies that require immediate access to small cash amounts. The application process for payday loans is designed to be quick, simple, and efficient. Comparative rates and amounts are available to be checked across various lenders, with online applications demanding minimal details – usually employment and banking specifics and contact information.
Some lenders even offer mobile-friendly applications, promising quicker loan accessibility. Once the application is approved, money is wired directly into the borrower’s account within hours. This reduces waiting time and eliminates the need for signing detailed agreements or face-to-face meetings with lenders.
Preventing Debt Escalation
Though payday loans can exacerbate financial situations if borrowed irresponsibly, they can help avoid severe debt accumulation when used sensibly.
Take an immediate bill payment, for instance. Suppose an unexpected expense leaves your account short of the necessary balance. The consequence of a failed direct debit could be hefty fines, an overdraft, and potential bill bouncing – payday loans can be a real savior in such situations. They allow borrowing of small amounts to avoid financial catastrophes, ensuring smooth month-end sailings without missing bill payments.
This strategy only works if you’re confident about an incoming paycheck and have a robust repayment plan. However, if you can manage the costs and prioritise timely financial obligations, payday loans can provide a viable solution to your monetary troubles.