The Pros and Cons of Using Small Quick Loans in Financial Emergencies

Roman Holovin | September 05, 2023

Edited by Hannah Locklear

In times of financial emergencies, the allure of small quick loans (also known as payday loans) often becomes increasingly tempting. Whether it's an unexpected medical bill, a car repair, or a sudden travel expense, quick loans promise immediate relief by offering fast cash with minimal paperwork.

However, while they may solve an immediate cash flow issue, they also come with their own set of drawbacks, such as sky-high interest rates and hidden fees, that can quickly turn a short-term fix into a long-term financial burden. Keep reading for the pros and cons of using small quick loans in financial emergencies so that you can be equipped with the knowledge you need to make an informed decision.

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What constitutes a financial emergency?

A financial emergency isn’t a mere inconvenience; it's a sudden, often unanticipated event that requires immediate financial attention. Imagine unexpected medical bills that don't sync with your payday, a car breakdown just days before a crucial job interview, or even an abrupt eviction notice. The gravity of such situations can vary, but the urgency remains consistent.

If you find yourself in the midst of a financial emergency, you may consider small quick loans as a solution. Just be aware that these type of loans may have their benefits, but they also come with serious risks. Below, we’ll explore the pros and cons of small loans.

Small loans have some advantages if you find yourself in a bind

When emergencies loom large, the allure of small loans becomes unmistakably clear. Here's why:

• Instant Liquidity: An almost immediate infusion of funds ensures that emergencies can be tackled head-on, without the unnerving wait.
• No Collateral Required: A standout advantage, especially for those who might not own property or substantial assets.
• Broad Accessibility: Ensures a wider range of individuals can access financial help.
• No Risk to Personal Assets: Borrow without the fear of losing precious belongings.
• Custom Amounts: Borrow just enough to cover the emergency, avoiding unnecessary debt.
• Bespoke Repayment Plans: Given that emergencies can strain finances, many lenders offer tailored plans to ease repayment.
• Credit Score Boost: If repaid promptly, these loans can be an excellent way to enhance one's credit score, creating a robust financial foundation for the future.
• Privacy and Discretion: Digital applications mean you can apply from the comfort of your home, keeping your financial affairs discreet.
• Educative Experience: Especially for first-time borrowers, this can be a great way to understand lending procedures, interest rates, and financial responsibility.

Quick cash sounds good, but it definitely comes at a cost. In fact, using a small quick loan to bail yourself out of a debt problem can actually dig you a deeper hole. Before signing up for a payday loan, you should consider its risks and problems.

Small quick loans can be risky and problematic

However, like all financial tools, small quick loans come with caveats. The convenience and accessibility of small quick loans can sometimes overshadow their typically higher interest rates. Furthermore, a failure to repay can not only plunge a borrower into a debt cycle but can also tarnish their credit history. There's also the lurking danger of hidden fees, which can surreptitiously inflate the repayment amount.

Here is a list of all the potential risks and disadvantages of small quick loans, which notably may outweigh the benefits:

• High Interest Rates: These loans often have exorbitant APRs, sometimes exceeding 300% or more.
• Hidden Fees: Additional charges like processing fees, late payment fees, and rollover fees can accumulate quickly.
• Debt Cycle: Due to high costs and short repayment terms, borrowers may need to take out additional loans to repay the original loan, creating a cycle of debt.
• Credit Score Damage: Failure to repay can have a severe negative impact on your credit score.
• Limited Building of Good Credit: Many payday lenders don't report on-time payments to credit bureaus, so responsible use doesn’t help improve your credit.
• Limited Regulation: In some jurisdictions, these loans are less regulated, increasing the risk of predatory lending practices.
• Unscrupulous Lenders: There’s a higher risk of encountering scams or unethical lending practices.
• Privacy Risks: Some lenders may not adequately secure your personal and financial information.
• Stress and Anxiety: The pressure to repay such high-cost loans can lead to significant emotional stress.
• Financial Instability: The short-term relief these loans provide may mask an underlying issue with financial instability, delaying meaningful action.
• Small Loan Amounts: The loan amounts are generally small and may not be sufficient to cover your needs.
• Short Repayment Terms: Quick loans usually require repayment by the next paycheck, providing limited flexibility.
• Forfeiture of Assets: If secured, you risk losing valuable assets like your car or home if you default on repayment.
• Lost Financial Opportunities: The high costs may prevent you from taking advantage of other financial opportunities, such as saving or investing.

Tips for Responsible Borrowing During Emergencies

Caution and foresight are the watchwords when navigating the financial rapids. Before you apply for a small loan, it's paramount to assess the absolute necessity of the loan. Once decided, it’s wise to scour the market, comparing terms to ensure the best fit. Reading the fine print can never be overstated; hidden clauses have been the bane of many a borrower. And perhaps most crucially, devise a solid repayment strategy, making sure you're never caught off guard.

Get Approved for a Loan – But Wisely: In the age of digital lending, so it's easier than ever to get approved for a loan. However, just because it's simple doesn't mean it should be done impulsively. First, you should consider:

• Your Repayment Capacity: Before clicking that 'Apply' button, evaluate if your income supports the loan's repayment structure.
• Loan Amount: Borrowing more than necessary can lead to unnecessary financial strain. Remember, every penny borrowed needs to be repaid with interest.

Consider alternatives to small loans

While small loans can provide temporary relief, they aren't the only instruments in your financial toolbox. For those with less-than-stellar credit histories, loans for bad credit might be an avenue worth exploring. These cater specifically to those with compromised credit scores, albeit often at higher interest rates. Beyond this, you might consider tapping into personal savings, seeking assistance from close acquaintances, or even bartering services in exchange for financial aid.

Resolve your debt with the help of SoloSuit

While a payday loan may seem like the answer to your debt problems, there are other options available to help you resolve your debt once and for all. SoloSuit is one of those options.

SoloSuit can help you respond to debt collectors at any stage of the collection process. If you’ve just been contacted about a debt you owe, SoloSuit can help you request debt validation to block future legal action. If legal action has already been taken, SoloSuit has many resources to help you respond to your debt lawsuit and settle your debt before going to court.

To learn more about how to resolve your debts, check out this video:

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>>Read the FastCompany article: Debt Lawsuits Are Complicated: This Website Makes Them Simpler To Navigate

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