SMS loans are easier to apply and almost always approved, but are these the best? Do they have any drawbacks? According to financial experts, you should consider your financial security when applying for them.

What is a Payday loan?
Fundamentally, they are a form of cash advance which people take against their next paycheck. People are lending from third parties – not their banks – while others consider borrowing them from the online lenders. Individuals take them to cover their emergency expenses until their next payday has arrived. 

In a few situations, payday loans can be helpful. They can help you get through short term financial difficulties – provided that you will use them carefully. On the other hand, they can be pretty pricey due to the involved high-interest rates and fees. Moreover, the chances of your borrowing mistakes increasing are very high. Therefore, before you apply for your next SMS loan against your monthly payroll disbursement, consider the following pros and cons. 

The Pros:

  • Easier to apply 

The payday lending application process will take less than 30 minutes. Most borrowers, particularly those doing it online, will take less than 5 minutes. And even though the credit check may take time, the involved paperwork is light. 

  • Ready approval

As a matter of fact, most borrowers receive their money within 24 hours (after the application). But there are also borrowers who receive the money in less than an hour. 

  • Higher loan amounts

If you can repay the loan plus the accumulated interest on time, the amount will increase gradually on additional requests you may make. As a result, your financial security will increase.
 
With a reliable lender, you will easily and quickly get your bad financial situations under control. Therefore, SMS loans serve one purpose: instant cash. If your hot water tank has burst or your vehicle has broken down, it will help you solve the problem. 

The Cons:

  • Higher interest rates 

Never apply for one unless you are confident that you will be able to repay it on time. Some lenders charge over 500% annual interest rates on the unpaid SMS loans. According to SMSlån 123, a reputable comparison solution in Sweden, the average annual interest rate is around 400% over there. 

  • Higher fees

In addition to the higher interest rates, payday lenders charge penalties of around 15-100% on the loans not repaid on time. They also flip or roll over not repaid ones into new ones. On the new one, they will add a fee and calculate a new interest. This path can lead you to worse financial difficulties. 

  • Lender-powerful contracts

The involved contracts are more favorable to the lenders. After clicking the ‘Agree Box,’ people who fail to read the contract find themselves in the weak position after things have gone wrong. Always read the contract carefully. 

  • Bad collection practices 

Some lenders use unethical collection ways. They will call your employer, your family members and some may use threats of arrest. 

The bottom line
Before opting for a payday loan, consider the other alternatives. It may help you get through a financial difficulty but won’t provide a long-term solution.