Short term unsecured loans, more commonly known as Payday loans, are relatively new to the finance sector but seem to be very popular in the current bleak economic climate. As with all loans, Payday loans have both advantages and disadvantages and it is down to the customer if they are willing to take the risks associated with this kind of debt.
• Short repayment period: The very nature of Payday loans means that they can only be taken out over a short period of time, and the loan amount borrowed needs to repaid by your next payday; hence the name. Many people see this as a great attribute as the short time span means that they won’t be burdened with long term debt if they opt for this type of loan. And since prolonged debt goes hand in hand with stress, mental strain and depression, many choose not to go for traditional loan agreements, such as secured loans, and instead apply for a short term payday loan.
• No credit check: Your credit rating is the foundation upon which all financial decisions are based upon. If you don’t have a clean credit history it is almost impossible to get approved for any traditional finance options. So, much to the delight of those with a poor credit rating, Payday loan lenders don’t perform a credit check; it’s not required as part of the approval process, as it is an unsecured loan, unlike traditional loans that are secured with collateral.
• Rapid processing time: Since the approval criteria is very minimal the time taken to approve a loan is extremely quick; usually completed within 24 hours of the initial enquiry and application. The only criteria that you would have to satisfy are the following:
1. You must be 18 years old or above
2. You must be a citizen of the country in which you are applying
3. You must be in permanent employment
4. You must have a valid, active bank account
5. You must have a valid, active email address for any further communication
• High interest rates: Since these loans are unsecured in nature the lender has to impose high interest rates, since, in theory, you aren’t providing them with any security or guarantee that you will repay the money they have lent.
• APR- On average the annual percentage rate for a payday loan is around 400 percent, but can as high as 5,000 percent. So, when compared to a standard credit card APR of 12 percent this is very high.