For most individuals, microloans such as payday advances are invaluable tools when it comes to keeping up with their monthly expenses. They are currently one of the easiest ways to borrow small amounts of money, in an instant. Furthermore, lenders do not usually place any restrictions on how the money can be used, making the loans appealing to a wider variety of borrowers.
In some cases, it is also possible to get microloans right from the cashpoint. Generally speaking, banks and various private lenders have done everything in their power to market these types of loans as financial products that are both easy to use, as well as save. In other words, they have been advertised as loans that do not require a particular credit rating, and that individuals can get whenever they need extra money.
This having been said, one of the most important aspects of these loans that lenders often avoid mentioning is that these financial products often have hidden fees attached to them, as well as other considerable disadvantages that make them less than practical. Here is what you need to know:
- Hidden Fees That Are Often Disclosed on a Need-to-know Basis
Most banks advertise microloans and payday loans as great ways to borrow money for urgent expenses, but they leave out the fact that there are several charges that can be applied, as a result of how long or how little it takes to repay the money. Furthermore, getting payday loans from cashpoints that belong to other banks also apply extra charges to the transaction.
- Using Them Has a Negative Impact on Your Credit Rating
Getting payday advances every month is sure what to reduce your credit rating in a short time. This is because each bank-given payday advance is marked in an individual’s permanent financial records as a loan, which means that it affects all calculations with regard to how much credit an individual is accessing and how often. Please keep in mind that taking out payday loans every six months or so will not have a considerable impact. The issues start appearing when an individual borrows money one month after the other.
- Taking Out Microloans Will Affect Your Eligibility for Other Financial Products
Microloans may be presented as loans that are easy to get and repay, but they can also affect an individual’s ability to access other financial products. For example, lenders look for indicators that a potential borrower is unable to manage his finances. Taking out payday loans too often may signal them that an individual needs extra credit to pay all of his monthly expenses. As a result, certain products may not be accessed by the borrower while others may have more restrictive terms and conditions attached to them
- There Are Safer and More Affordable Alternatives
Most lenders tend to push microloan deals on individuals who appear to already have an unstable financial situation. This is because they are the most likely to need to borrow money to get through the month. However, there are better ways to get the money that you need. The first method would be to set up a more restrictive budget to make the most out of your monthly income, however, if this is not enough, it is possible to borrow money from alternate sources. There are several Peer-to-Peer online lending platforms that offer short-term microloans. These have low values and need to be repaid in 30 days, but have the advantage of not harming your credit rating. Most P2P online lending platforms do not report their transactions to credit registers, which means that they won’t show up on your financial records.