Too good to be true? Why it pays to be wary of same day payday loans.

“Need cash fast? We’re just a few clicks away!”

“Change bad credit into good, fast and easy!”

“Get up to $1500 deposited into your account within the hour! No questions asked!”

When a financial institution’s advertising efforts resemble a collection of subject headings from your spam folder, it certainly pays to embrace your inner skeptic. Managing one’s finances can be a tricky thing even under ideal conditions, moreso should life decide to throw you a curveball. Perhaps the car broke down out of the blue, a family member unexpectedly came down with a serious illness or it’s your octuplets’ 18th birthdays and they each demand their own diamond encrusted ring. We never know when we might need a little boost to tide us over from time to time. Aggressively advertised “same-day payday loans” are steadily gaining traction online due to the alluring nature of the quick-relief scheme they allegedly offer. But not all that glitters is gold, and here we’ll take a closer analysis at same day payday loans and understand the risks one may accrue when committing to one.

What is a same-day payday loan?

Payday loans are familiar enough to most of us. Typically, these are small, short term loans generally lasting no more than a month – or, just enough till your next payday, hence the name -and are characterized by extremely large fees relative to their mainstream counterparts. Annual percentage rates (APR) of such loans commonly hover around 400%, but stories of people forking over an APR of 1000% or more is far from unheard of either.

A same-day payday loan is a payday loan with a very low approval period, often within a day. In fact, businesses offering this variant of online loans same day approval will readily advertise that they do not require credit checks and proudly tout how this omission streamlines the approval process.

At first glance, payday loans appear as an easily accessible source of financial aid that anyone in a temporary rough spot can utilize to tide them over. Why, they come across almost altruistic.   

The dangers of same-day payday loans

Same day payday loans online sure seem like a great deal, but it is precisely this aspect that warrants greater scrutiny. Businesses are after all, profit-driven entities. This goes double for financial institutions such as money lenders, and we can be fairly sure that whatever “great deals” they are offering have been carefully calculated to work in the house’s favor. 

When a deal sounds too good to be true, it probably is. Few favorable transactions come with no strings attached, and sadly, same-day payday loans aren’t one of them. Lenders may promise same-day approval but in practice, the majority fails to deliver. What actually happens is that lenders will begin to process your loan request and appear to approve it on the same business day, but that’s as far as the consumer’s getting. The loan request will actually be put on hold while the lender puts you through the very series of stringent checks they promised you’d skip. Only when your credit background has been verified will the funds actually be wired to your account, and this can take anywhere from several days to as long as a week. For all the promised bells and whistles, the “same-day” component of same-day payday loans is rarely realized. 

The more discerning among you will have realized that the aforementioned examples were the “majority”. The subsequent implications are indeed true and there do exist lenders that do deliver same-day approval as promised. However, as expected, this expedited service comes at a hefty price. The chief concern any money lender has will be defaulters among its clients. This is why the credit check procedure exists in the first place, to give lenders a reasonable estimate of the risk it is incurring when agreeing to loan funds to a given individual. A bad credit rating implies a higher level of risk and lenders will consequently hedge their risks by raising interest fees for these individuals. 

Now then, when a lender actually sees their claims through and omits the crucial credit check from a prospective client, it is acknowledging the acceptance of a significantly elevated level of risk by going in blind. Remember what was mentioned just a few lines ago? In response to these heightened levels of risk, lenders will accordingly raise their fees in order to hedge potential losses and this produces the astronomical APR that same-day payday loans are notoriously known for. The damage is further compounded should one fail to make punctual repayment (bearing in mind, the loan period is very short) and becomes liable for late repayment fees which are also dauntingly high. 

Conclusion

Same day payday loans ostensibly aren’t as favorable as they are presented to be. Their issues are further exacerbated when we consider the demographic that comprises their client base. Payday loans are usually marketed toward those who have trouble living from paycheck to paycheck. Brazenly and misleadingly marketed as an interim financial aid, payday loans instead cost borrowers far more in the long-run through a multi-pronged assault of staggering APRs, propensity to expose clients to late repayment fees and the possibility of incurring overdraft fees. Payday loans regularly come under fire for perpetuating a negative feedback cycle of worsening debt, so much so that most governments impose restrictions upon lenders in order to limit the maximum fees that they are entitled to charge.

It is a telling sign when entire jurisdictions have to step in explicitly to provide damage control for the social complications introduced by the payday business model. Should you be currently considering taking up a same day payday loan, please strongly reconsider and know that a myriad of safer alternatives do exist.

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