Why Payday Loans Are Popular Nowadays?

Why Payday Loans Are Popular Nowadays?

The worldwide lending market is large and diverse. In some countries like the US, students accumulate insane debt and this has become a national issue already. While in other regions like Denmark, banks pay customers when they take out a mortgage. Still, short-term payday loans remain a go-to option for millions of people, especially those from poorly developed countries.

There are a few reasons for this. For example, people often need cash to cover urgent expenses. Also, the unbanked and underbanked have poor credit scores so it’s barely possible for them to get other types of loans. That’s why private lenders that offer fast and small loans are highly demanded.

General Payday Loan Features

In a nutshell, a regular payday loan is short-term, requires no collateral, and comes with a relatively high interest rate. It allows getting financial support up to a few thousand dollars. These loans help people in need to cover ongoing urgent expenses, e.g. on medicine, housing or food. Interest rates may be really high, e.g. a $100 one-week loan can come with a $20 fee.

Advantages of Such Loans

This section reveals the main benefits of payday loans and the reasons why clients prefer them.

You already know that lenders may impose high fees. Some of them even use illegal methods to return their money. What’s more, with payday loans you are at risk of accumulating debt. So, why do customers tend to apply for these loans then? Let’s figure out!

1. Easy to Qualify

What’s the main desire of a borrower? The money, of course. But apart from this, any borrower is looking for a lender, who sets minimum requirements to meet. The majority of payday clients are people plagued by the lack of financial resources. According to Finder, these customers often don’t have a college degree, earn from $15,000 to $25,000 per year, rent apartments instead of purchasing them, have children, are disabled and/or divorced.

Therefore, these people opt for payday loans, because they are easy to get. The requirements are as follows:

Info about employment without strict limits and proofs of income.

Credit score check. But it doesn’t affect the final decision, usually.

Verification of age. It helps lenders ensure that you’re an adult.

2. No Usage Restrictions

Traditionally, bank and government loans require a borrower to specify the purpose. For example, you can get a mortgage loan to purchase or renovate the home. Auto loans allow you to invest in cars or other vehicles. Student loans can be used to pay tuition fees or other education-related expenses, and so on.

However, payday lenders are more ‘borrower-friendly’. Feel free to invest in your business, buy a new iPhone, pay for your vacation, rent an apartment, whatever. The only thing these lenders want is to receive the full amount of money and a certain interest rate on the due date. If you fail to repay, be ready for extra fees or even more drastic measures if you deal with loan sharks.

3. Varying Interest Rates

If you take up a payday loan for a very short term, you can get better conditions than with traditional bank loans. Banks usually set a minimum fixed term for a loan — 6 months, 1 year, etc. Therefore, the fee that you might pay by the end of the term can be higher than that of a payday loan.

Let’s compare two examples:

1. Payday loan — $1,000 for 1 week with a $200 fee.

2. Bank loan — $1,000 for 1 year with a 5% monthly interest rate. The APR will be 60%, so you will return $600 as an interest rate because of the year-long period.

As you can see, rates are pretty different. That’s why you should always understand the purpose of loans. If you need money to cover urgent expenses, payday loans are better than long-term bank offers. Similarly, if you need long-term investment, payday loans may accumulate huge debt.

4. Quick Cash Transfers

Clients of payday lenders almost always need the money urgently to pay for something. That’s why they can’t go to banks — due to long approval and delivery terms. Payday lending companies review applications and send funds within 24 hours, most often.

It's especially true for online companies. They accept and review applications via web platforms. Then, they transfer the required amounts to your bank account directly. They can even refill and get repayments automatically.

5. Useful During Recession

The last point isn’t obvious but is essential to understand the popularity of payday offers. During global financial crises like the Great Recession, large banks and even private financial firms can barely take extra risk. Hence, they reject loan applications even from the clients with an average credit score or a decent income. This is where payday lenders come in handy. They accept nearly everybody understanding the growing demand.

Final Thoughts

Overall, the popularity of payday lenders relates to several points. Such firms target specific social groups that aren’t fully covered by traditional banks. Thanks to a lack of credit checks, short-term offers, and quick delivery, payday lenders dominate this niche.

If you deal with legit and officially licensed payday lending companies, it’s a pretty safe way to obtain money. Just make sure to accurately calculate the repayment amount and return the money on time. And, of course, avoid shady lenders that can steal your personal data or use it for fraudulent purposes.

Last updated:11/16/2019 2:13:38 AM
Shah ji SEO

Shah ji SEO

I am working as blogger and has already doing blogging for some sites but also done some post article for this site because of its quality View My Instant Approval Guest Blogging Sites List 2018.And this is my email id: bellaseo786@gmail.com


Leave Comment