People facing unexpected financial distress opt for payday loans and similar lending services. These lending services have become quite popular in Australia. These loans help the borrowers overcome unforeseen financial hardships, but they come with their shares of drawbacks too. So, the lenders need to think of the pros and cons carefully before opting for such short-term loans. The same can be said about the cash advance loans that have thrived in recent years.
The drawbacks of short term loans
People in traditional jobs or those with their own ventures may face cash cottage owing to various situations, and that is when they opt for quick cash loans Australia. However, the biggest drawback of such short-term loans is they come with very high annual percentage rates. In fact, the payday loan APRs may touch three figures, which is way higher than the APR used for credit cards.
The typical payday loan services are on the decline, and they are being replaced with cash-advance lenders operating through mobile apps. With millions of people coping with the COVID-19 pandemic and resultant income loss, these financial services are thriving. Considering the limitations of such short-term loans, consumers need to check out the other lending options.
It has often been seen the borrowers using these quick loan services get mired in a never-ending cycle of debts. In fact, there are instances of people taking a second payday loan to pay off the first loan.
Cash Advance Services and Payday Loans- a face-off
Initially, the cash-advance services and payday loans may seem identical to a borrower. However, the difference lies in the pricing. The payday loans agencies have drawn flak for their steep annual percentage rates. Efforts to rein in their aggressive percentage rates have not yielded much result. The App-based cash loan services are newcomers. These lenders ask borrowers for tips per advance. It can hover between 5% and 15% of the amount borrowed.
Payday loans lure the consumers as the lenders need very few documents, and processing is very fast. In most cases, the borrowers need to furnish a bank account, proof of income, and valid ID proof. Most payday lenders do not require credit checks.
For obtaining a loan from the cash advance apps, borrowers need to submit detailed personal information. The agencies analyze their credit score. They do not charge interest or additional fees. They ask the borrowers for voluntary tips. However, not all lenders resort to the same practices in this regard.
Ways to evade availing Cash Advance Loans and Payday Loans
Financial hardships can crop up anytime for the majority of people. However, by staying prepared, they can evade using the services of short-term lenders. The viable alternatives are:
- Taking loans from relatives or friends.
- Negotiation with the creditor for lowering the amount.
- Starting an emergency fund to meet unforeseen financial hardships.
- Try to get a credit card.
If no other option is available, people facing a cash crunch may opt for quick cash loans Australia. However, cash advance loans tend to fare better than typical payday loans. It is prudent to assess the image and track record of the lender before seeking a loan.