Pros & Cons of Payday Loans or Short-Term Installment Loans

Payday loans and related short-term installment loans can be a valuable tool for cash-strapped people with credit issues to quickly obtain a cash loan before their next payday. However, many states have recently started strengthening laws concerning payday loans due to the predatory nature of some cash advance lenders. Using a payday loan service should always be done as a short-term solution and with proper research and caution.

Easy Qualification

In most cases, qualifying for a payday loan takes a few minutes and does not require a traditional credit check. Almost any employed person with a checking account and who did not default on payday loans with another company can quickly borrow cash and pay it back through a post-dated check on her next payday.

Interest Rates

Interest rates are a con of most payday loans. Some loans end up charging more interest than the loan was ever even worth when it becomes a short-term installment loan. At the very least, most customers will pay at least 30 percent interest on their loan.

Collections

Payday loan collection efforts in the event of default are usually very aggressive, and can be frightening to the late borrower. However, it is important to remember one cannot be arrested for falling behind on a payday loan.

Multiple Loans

The ability to get multiple loans from both in-person and online payday lenders could be both a pro and a con depending on the finances and responsibility of the borrower. However, most lenders now have a tracking system so it is harder to get more than one or two payday loans.

Auto Title Loans

Auto title loans, short-term installment loans based on ownership of a car, are usually a bad idea. Many people have lost their cars for defaulting on a loan much smaller than the value of the car.