Introduction
Financial emergencies often come without any intimation and leave individuals searching for the solution to combat them. It can either be an overdue bill, unexpected medical emergency, college fees, car repairs, etc. that leave individuals stranded as the situation requires immediate cash access to counter them. One option that many borrowers consider during the situation is to opt for payday loans online directly from the lenders. These loans are designed to borrower’s a short-term relief till the time when their next paycheck arrives. However, like with every financial product, there are benefits and risks associated with the direct payday lender loans. We will be discussing what direct lender payday loans are, how they work, and what are their advantages and disadvantages.
Let us begin our journey with understanding about direct payday lender loans.
Understanding Direct Payday Lender Loans
Direct payday loans are low interest personal loans provided by the lenders to the borrowers who have a direct interaction with them. Direct lenders manage the entire loan process unlike the payday loan brokers who act as a medium for the conversation. The loan process ranges from the application process to disbursement of the loan amount to repayment process. Compared to traditional loans, the lenders charge high interest rates on these loans and they must be repaid till the date when the borrower’s next paycheck arrives.
It is easier for the borrower to qualify for these loans as they don’t have to undergo a credit check nor have to submit a collateral as security. The appeal of these loans lies in their quick and straightforward process, making them an ideal option for the individuals who require immediate cash or have a poor credit history. However, they are a risky choice because of the short repayment terms and their high cost.
It’s time to understand how these loans work.
How Do Direct Lender Payday Loans Work?
The process to obtain a no credit check installment loans is very simple. The borrower is required to follow these steps:
- They can submit an online application for the loan or directly connect with the lender. The application process requires borrowers to provide certain details like income proof, bank account statement, and identity proof. There are instances where the lender directly asks for income proof or employment details to ensure that the borrower has the ability to repay the loan taken.
- Direct lenders have the tendency to quickly approve the applications. Many borrower’s applications are approved within a few minutes after applying online. It is because payday loans are approved based on the borrower’s income and not their credit history.
- After the application approval, the funds are directly transferred in the borrower’s bank account on the very same day or next working hours.
- These loans are short-term and the borrower must repay on the date of the arrival of their next paycheck. The repayment is automatic as the lender directly deducts the loan amount from the borrower’s bank account along with the interest rate and fees charged.
The process is quick, contemplating the borrower’s to overlook the potential risks associated with them such as high fees and repayment. Now let’s discuss the various benefits associated with these loans.
Benefits of Direct Lender Payday Loans
The various advantages that make installment loans online an attractive option among the borrowers are
Quick Access to Funds
Speed is the most appealing feature that separates the payday loans from other forms of loans available in the market. There are cases where the borrower directly receives the loan amount in their bank account or within the next working hours. The rapid access to funds is a crucial factor to combat the emergency situation.
Simple Application Process
The application process is a pretty straightforward process especially in the cases where the borrower is directly connected with the lender. Most lenders require only basic information of the lenders like identity proof, income proof, bank statement, etc. and the process can be completed online. The best thing about these loans is that the process is entirely online and the borrower can skip tons of paperwork while applying for the loan at the comfort of their home.
Lenient Credit Requirements
Obtaining a traditional loan can be a challenge for the borrower having poor or no credit history. Payday loans, however, are available to individuals that have poor credit history. The approval of these loans is based on income rather than the credit history. That’s why many borrowers having poor credit history can easily avail the loans.
Direct Relation With Lenders
The borrowers will have direct and streamlined communication while connecting with the borrower. With no involvement of middlemen, the loan process becomes both less complicated and quicker. Additionally, the lenders directly handle everything from the application to the funding process. As a result, this gives borrowers a clear and exact idea of whom they’re dealing with.
Short-Term Commitment
Payday loans are short-term loans that are repaid within a few weeks. They are not like traditional loans that require time to clear. The idea to quickly resolve their debt appeals to many borrowers. It will not cause a burden on their pockets in the long run.
It’s time to discuss the risks associated with the payday loans.
Risks of Direct Lender Payday Loans
Despite their benefits, there are certain risks associated with the installment loans for bad credit. Some of the major risks are:
High Interest Rates and Fees
Cost is one of the most significant risks associated with these loans. These loans typically carry extremely high interest rates or APRs, which can reach up to 400% or more. Even though the loan amount will be small, the fee can quickly add up. It often leaves borrowers to repay more than the amount they have borrowed.
Short Repayment Period
The loans are designed to be a short-term solution and the brief repayment period can pose a challenge for many borrowers. In most cases, the borrowers have to repay the loan on the arrival of their next paycheck. If the borrower fails to repay the same on the prescribed date, they will be forced to roll over the loan. It often leads to additional interest and fees.
Debt Cycle Risk
It is one of the most famous criticisms of payday loans as they have the ability to trap a borrower in the vicious debt cycle. There are cases when the borrower takes an additional loan to cover the ongoing debt cycle because of the short repayment terms and high fees. It leads to a borrowing cycle which will be difficult for the borrower to overcome.
Impact On The Credit Score
Even though these loans are not reported to credit bureaus, there are high chances that these loans can have a negative impact on the borrower’s credit score. It usually happens when the loan goes into collections, it might be reported to the credit bureaus. It can ultimately damage the credit score of the borrower. This will make it difficult for the borrower to obtain credit in the future.
Wrapping Up
To sum up, low interest personal loans provide borrowers a quick access to cash during the emergency situation. All it requires is the borrower to fill an online application form and the amount is credited in the bank account within a few minutes. However, the borrower must be aware of the above mentioned risks while applying for them. Therefore, the borrower must carefully weigh the pros and cons associated with them. Moreover, they must have a thorough understanding of the functioning of these loans as it will allow them to make informed decisions and help them dodge the potential pitfall of payday loans.