The concept of payday loans has become popular among the young working generation in the past decade. A payday loan is a short-period loan that charges high interest for the credit the lender provides. The loan term is about a month and it is paid by the borrower as soon as they get their next paycheck. These types of loans have a simple credit underwriting process as only the lenders only ask for proof of your exact monthly income. Let us check some of the reasons which make them popular.
People can easily apply for payday loans
Due to inflation, the expenses of people are rising drastically while their salaries receive very small increments. Thus in times when there is a shortage of money, people can apply for a payday loan from digital lending platform for their necessary expenses. This has resulted in the popularity of payday loans.
The loan underwriting process is very simple
As stated earlier, the payday loan approval process is very fast. The lenders only check the applicant's credit score and the proof of their monthly income. No other assets are required for the loan underwriting of a payday loan. Applicants can easily get the money in a small window of time. This is helpful when credit is needed for some type of unexpected expense or an emergency.
The payday loans are closed within a short-term
Most payday loans are taken out for a month. When the borrower gets their next monthly salary, they can close the payday loan quickly. The absence of any long periods of commitment makes a payday loan an attractive option.
Some of the cons of a payday loan
Along with the benefits,
there are also some cons to a payday loan. You should always keep them in your
mind.
●
They have an unusually
high-interest rate.
●
They have high penalties
for defaulting.
● They do not provide any long-term solutions and depending upon them regularly is considered a bad financial habit.
Although there are some
disadvantages of using payday loans, as the loan gets cleared with the next
paycheck, people have started to prefer them because of their simple
application and loan closure process.
