Did you know? An independent study found that 76% of South Africans ran out of money at the end of the month, while 57% faced a money shortage in the middle of the month. If you have bills coming up and you have no money left to pay them, it can be a very stressful situation. This is why 80% of South Africans turn to payday loans to get fast during their tough time.
However, if payday loans are not managed responsibly, they could lead to even more severe financial troubles. While payday loan benefits look good for short-term usage, the disadvantages can be massive, too.
In this post, written by the Payday Gorilla expert team, we’ll try to explain payday loans and why they could be risky if not managed responsibly. Let’s get down to business!
Key takeaways:
- Payday loans are known for providing quick cash but are offered at very high interest rates.
- There is always the risk of falling into a debt cycle.
- As compared to payday loans, credit unions and traditional lenders offer more affordable borrowing options.
- People with bad credit or no credit are more attracted to payday loans.
- If not repaid on time, payday loans can negatively impact and lower credit scores.
What is a payday loan in South Africa?
Typically, payday loan is a small amount and short-term loan that can help you to get cash until your next paycheck. If compare to conventional loans, they are easy to get approval and required lenient eligibility criteria, even bad credit people qualify for it.
However, before applying, ensure you have the ability to repay them on the agreed date because payday loans usually come with astonishingly high interest rates. In South Africa, payday loans and other short-term financing products are regulated by the National Credit Regulator (NCR). They are responsible for licensed lenders and watchdog them to protect consumers from predatory activities.
Advantages of a payday loan
A payday loan in South Africa can be a good borrowing option for some individuals. However, checking your current financial situation is important and seeing if a payday loan is ideal. In most common scenarios, payday loans may be useful for:
- Instant financial relief: Unlike conventional bank loans, payday loans are easy to access using a simple online application. This makes them a quick cash solution, especially during financial emergencies.
- Lenient loan requirements: Typically, payday loans require fewer requirements to apply. Even people with bad credit or no credit can qualify for them.
- No need for collateral: Unlike secured loans or other form of traditional forms of credit, payday loans are generally unsecured. It means you don’t need to put assets as collateral to get approval.
- Easy to apply: Payday loans are designed to provide instant cash relief during financial difficulties. The application process is easy, usually completed online within minutes, and cash disbursed on the same day.
- High approval chances: Compared to other credit options, approval chances with payday loans are on the higher side. Borrowers with bad credit are more likely to be approved for a payday loan because payday lenders heavily rely on the borrower’s creditworthiness rather than credit rating.
Disadvantages of a payday loan
Though there are some benefits of payday loans, lots of considerations are attached for borrowers while deciding on taking out a loan:
- Very high interest rates: With easy approvals, quick cash access, and intention to repaid fast, payday loans are often offered at hight interest rates. Sometime it could be difficult for borrowers to repaid such high repayments.
- Not a permanent debt solution: Always remember that payday loans are only meant to get small amount of money to cover unexpected expenses only. They shouldn’t be taken as a permanent solution to debt.
- Shorter repayment period: Payday loans are a type of short-term loans and are intended to be repaid on borrower’s next payday period.
- Possible cause of cycle of debt: Due to payday loans high interest rates and shorter repayment period, borrowers need to taking out additional payday loans to pay existing debt. This could resultant never ending cycle of debt.
Alternatives to payday loans in South Africa
- Use your savings: If you have savings in your account, you should consider using them before taking a high-interest payday loan. Always try to save a portion of your income for rainy days.
- 0% interest credit cards: Many credit card companies offer 0% interest credit cards for up to a year. These cards allow you to repay your debt in installments without adding interest.
- Try budgeting: If your budget is poorly managed or has a gap, it may be worth reviewing it thoroughly. Try to manage your inlays and outlays effectively before considering credit options like payday loans.
- Sell high-value items: If you have valuable assets that can be sold to pay off your debts, you should consider selling them before taking a payday loan.
If you are considering applying for payday loans in Johannesburg or South Africa, Payday Gorilla can help. Explore instant approved and best payday loans online with quick funding on the same day of approval. Enjoy smooth and stress-free borrowing with us.
