Risk of Payday Loans

A payday loan is one of the most sought after solutions to emergency expenses. This is evidenced by the great number of companies offering payday loans online and the even greater number of people who avail of these loans. Payday loans are actually fast cash advances offered to people who have a regular source of income from a job. The attraction in payday loans is the ease in application and speed of the approval. Plus, the requirements are so basic that most people can qualify for the loan. You only need a checking account and some proof that you are employed.

It is a fact, however, that the risk in payday loans is high both for the lender and the borrower. For the lending company, the normal default rate is about ten to twenty percent rate which has a great effect on their annual revenue. For this, they impose a very high interest rate on the principal subtracted outright. On top of the interest rate are fees for processing and others. These fees will serve as buffer to the possible loss of the lending company.

The risk incurred by the lender is due to the fact that most payday loans do not require a credit investigation in order to be approved. So, apparently people who avail of payday loans are not all good payers. Even those who defaulted on other loans or currently have pending loans can be approved for this type of loan. The assurance, therefore, of payment by the borrower is not that good.

The borrower when applying for a payday loan faces a risk as well and this is the risk of paying the initial fees imposed by the lender and more in case of default. So the commitment to pay the loan on the next payday should be there so that the borrower will not stand to incur more risk which could land him in deep debt, a situation which is actually faced by some borrowers.

Both borrower and lender choose to stand the risk of payday loans, thus, making the payday loan industry, a thriving one. This is a manifestation of its function in the lives of people today. There are situations when people have no choice but to turn to fast loans such as an emergency medical situation, travel expense or household repair that needs immediate attention. Payday loans provide an answer to these urgent expenses. With the very easy application process and an even easier approval process, payday loans really live up to its function.

The speedy online application and approval process give payday loans its appeal because getting a payday loan is not only easy, it is also very convenient. It can be done while the borrower is at home or in his workplace. With a computer equipped with internet connection, he can choose the lending company, file his application and get the approval.