What are the Pros and Cons of a Military Payday Loan?

For those who are service members, or others with U.S. military status, considering the pros and cons of a military payday loan can help in forming the best financial decisions about this kind of borrowing. Payday loans are generally taken out by individuals who need quick money in order to make bills until payday. The offers made by payday loan companies have some significant drawbacks, as well as some potential benefits for those who make good decisions about repayment.

Some of the positives of military payday loans involve somewhat better protection for military members than for the general population. The way government has regulated payday loans, there are a stricter set of protections for borrowers who are connected to the U.S. military. This can make a military payday loan a better option than a conventional “civilian payday loan.”

Military payday loans can also serve the purpose of helping families to deal with bills due up front. For example, if the military personnel is slow in receiving earned income from the Army, or some other government employer, the payday loan can be effective in paying rent to avoid punitive actions by a landlord. This is what many financial experts mean by the term, “best case use” of a military payday loan.

It’s important for potential borrowers to note that military payday loans also come with their own extreme risks. As a particular kind of lending, payday loans are especially likely to trap a borrower in continued debt, especially if he or she does not read the loan agreement carefully. Some specific disadvantages of payday loans in general have led government and advocacy groups to look more closely at how companies facilitate this kind of short-term loan.

One of the main risks of a military payday loan, or any other payday loan offer, is rollovers. What happens is that many payday loans have short repayment terms, commonly as little as one or two months. If any balance on the loan remains at the end of that time frame, the loan gets “rolled” into a new loan with higher interest rates. The main problem is how high these interest rates can get; experts estimate that many payday loan companies raise rollover interest rates up beyond a staggering 100%, up to several hundred percent, which most financial professionals find to be extremely unfair to borrowers.

The principle way to avoid these negative circumstances is for those who are getting a military payday loan to understand exactly how long they have to repay the money without triggering extreme interest rate changes. It is essential to talk to payday loan companies at length before signing a document, and also follow a precise budgeting plan that ensures that payments will not be late. It can also help to bring a financial counselor along to the deal, or to submit the potential deal to his or her office for review before signing.