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Short-term Loan Borrowers: Why They Choose Payday Loans

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The payday loan industry has faced more than its fair share of criticism. Critics often attack the industry by arguing that borrowers are not sufficiently educated about the borrowing process and what is required of them to successfully complete a short-term loan transaction. However, a recent study conducted by MicroBilt, a risk­ management data provider based in Kennesaw, GA, reveals that the majority of surveyed consumers do understand how to use payday loans in a responsible manner and avoid paying the excessive fees that most critics claim.

The fees associated with payday advances may seem quite high to some people, and for some people, it is too high relative to their monthly income and what they can afford. As with many other industries that provide consumer services, there are pricing options available to choose from and also a variety of product types to choose from. Some other industry examples include mailing companies, cellular phone providers, and insurance providers. A responsible consumer should always research and understand the pros and cons of all providers before choosing to engage in business with a particular company. TopTenREVIEWS.com has a comprehensive comparison chart to help consumers choose the best payday loan provider for their needs, which can be found here.

So, amid all of the controversy and criticism surrounding payday loans and their cost, you may find yourself asking “why do consumers keep turning to short-term loans to fulfill their financial needs?” The answer lies in the benefits that these types of loans offer. For many customers, the value lies in the easy approval process, quick access to funds, and proven reliability of cash advance companies compared to traditional banks.

The entire approval process, from start to finish, is extremely fast and easy. It can take several weeks for a traditional bank loan to get processed, but in an emergency, there is little time to waste. Cash advances are available without the common hassles associated with a regular bank loan. After completing a five­ minute application, most applicants can be approved within minutes and the money will be direct­ deposited into their bank account by the next business day.

With most lenders the application process is entirely digital. The application is submitted online using either a computer, smartphone or tablet. Payday lenders make every effort to simplify and expedite the loan approval process to make the funds available to the end customer as quickly as possible. Additionally, with the use of services from data providers such as MicroBilt, lenders are able to automate the underwriting process and make quicker approval decisions to ensure that applicants are approved at lightning speeds.

If you’re wondering whether these types of short-term loans are secured, the answer is no, this is not a pawn transaction. Many traditional lending institutions require some sort of collateral as part of the transaction. This means borrowers must put up valuable personal assets such as a car, jewelry, or other equipment to secure the loan. However, there is no collateral required to receive a payday loan, so there is no need to risk losing your personal property.

Another advantage of an advance is that it can be used for any purpose. Often with traditional banks, the borrower must agree to use the funds only for pre-­approved expenses. However, with a payday advance borrowers have complete purchasing freedom. There is no explanation needed, and customers may spend their money however they see fit.

One final benefit to highlight is that traditional credit scores are not considered for approval. With bank loans, there is a heavy focus on your previous financing and credit history and as a result, many individuals with less than perfect credit are ineligible for a loan. Payday loans, however, do not require a credit check and most applicants will be approved.

In today’s tough economy, many Americans find themselves in the unfortunate situation of having to postpone payments on a few bills per month, resulting in lowered credit scores and accumulated late or NSF fees. Even the most financially savvy individuals cannot plan for all of life’s little emergencies. For people who need assistance, a payday loan may be the solution to help cover a variety of unanticipated expenses. Educated and responsible borrowers continue to turn to payday loan providers for help with many of their unforeseen financial hurdles. Although these types of loans are not ideal for everyone, there is a significant need for these types of financial products especially in an economy where access to credit is limited.