Same day and emergency loans, whilst not as popular as they were in their heyday of 2011 (source: Google Trends), are still sought after by millions of people each year (source: Growing Power). There has been much talk about this kind of high-cost short term borrowing, not all of it positive, but the truth is that there are good points and bad points when it comes to these sorts of loans. Let’s examine both the good and the bad.
Speed: As the name implies, same day loans can be applied for, approved and paid out into your account in the same day – and many sites actually boast that this process can be achieved within as little as 30 minutes. As the loans are typically for much smaller amounts, there is less red tape to wade through and the loan providers systems are set up to be as slick as possible. They have to be quick – as they wouldn’t be much good at meeting their customer’s needs if one of their ’emergency loans’ took a week to be paid out.
Availability: These types of loans are available to a large majority of borrowers – even those with less than perfect credit scores. The flipside of this is, of course, the relatively high cost of borrowing the money. But for customers with poor credit who probably wouldn’t qualify for a mainstream loan with a lower APR, these types of loans are ideal for solving short term financial problems.
Risk level: Same day loans are generally unsecured loans, meaning that you don’t have to risk any collateral such as a house or car to apply for the loan. Obviously it is still in the borrower’s best interests to repay the loan fully and on time as doing otherwise would significantly impact your chances of any further borrowing – but you won’t lose your home if you can’t pay.
Flexibility: Typically these sorts of loans can be tailored exactly to your needs. You define exactly how much you want to borrow and the length you need it for. Want exactly £1200 over 6 months? No problem
The cost: There is really only one con, and that is the cost. As emergency loans are typically sought after by customers with bad credit histories, there is a significantly higher risk to the lender that a portion of the customers will not end up repaying their loan and default.
This risk to the lender means that they must, therefore, charge more interest on their loans overall to cover the losses from these defaulting customers. This results in the high APR rates that are associated with short term loans.
But if used correctly (i.e. to fund essential purchases or expenses in a time of emergency, and repay over a short period of time), these loans can be invaluable to certain borrowers.