Wise loans, also known as payday loans or cash advances, can seem like an attractive option when you need money quickly. However, these types of high-interest loans come with risks that you should consider carefully before borrowing. This in-depth guide examines the pros and cons of wise loans to help you make an informed decision about whether taking one out is right for you.
What is a Wise Loan?
A wise loan is a short-term, high-interest loan that is intended to provide you with cash until your next paycheck. Wise loans are easy to qualify for as long as you have a steady income source, bank account, and valid ID. The loan amount is typically small, around $200-$1000, and the repayment term is short, usually 2-4 weeks.
Wise loans don’t require a credit check, which makes them accessible to people with poor or no credit. However, the lack of credit checks means the lender is taking on high risk. As a result, wise loans come with very high-interest rates. A typical wise loan may have an APR of 400% or more!
The Pros of Wise Loans
- Fast approval: You can be approved in minutes and get the cash deposited into your bank account as soon as the next business day. This makes wise loans helpful in an emergency when you need money immediately.
- Easy to qualify: Since there is no credit check, income, and basic personal details are all you need to get approved. Wise loans are accessible to those who can’t get other types of financing.
- Convenient: You can apply for a wise loan online in just a few minutes and get a fast decision. If approved, the funds are deposited electronically so you don’t have to go anywhere to pick up a check.
- Flexible terms: Wise loans allow you to borrow exactly the amount you need, from as little as $50 up to $1000 in most cases. You can choose a repayment term that aligns with your pay cycle, usually 2-4 weeks.
The Cons of Wise Loans
- Extremely high interest: The convenience and accessibility of wise loans come at a steep price – sky-high interest rates. APRs of 200%-500% are typical, making the true cost of borrowing much higher than it initially appears.
- Risk of rolling over loan: The short repayment terms coupled with high interest mean many borrowers struggle to fully repay their wise loan by the due date. This leads them to continually renew or “rollover” the loan – and each renewal racks up more interest fees.
- Can create a cycle of debt: It’s easy to get trapped in a cycle of renewing loans over and over. This cycle of debt gets harder to break each time as the growing fees eat up more of your paycheck.
- Fees and penalties for missing payments: Defaulting on a wise loan can incur hefty late fees, returned payment fees, and other penalties. If you fall behind on payments, the already high cost of the loan will balloon.
- Negative impact on credit: While wise lenders don’t check your credit upfront, if you default the missed payments are reported to credit agencies. This damages your credit score and makes it harder to get financing in the future.
Who Should Avoid Wise Loans
Due to the steep interest rates and risks, there are certain situations where wise loans are an especially bad choice:
- If you know you can’t afford to repay – Don’t take the loan if you are already struggling with debts and expenses that exceed your income.
- To pay existing debts – Getting a new wise loan to pay off credit cards, other loans, or bills can easily lead to a destructive debt cycle where you continually borrow.
- If you have other financing options – Given the high interest, a wise loan should only be a last resort if you have no access to lower-interest credit or can’t borrow from family/friends.
- To pay for wants vs. needs – These very expensive loans are hard to justify for nonessential purchases. Budget carefully and borrow only if it’s for an unavoidable emergency expense.
Alternatives to Wise Loans
The risks and costs of wise loans are clear. Before you decide to get one, always first explore other more affordable financing options such as:
- Borrowing from family or friends – For those who can get help from loved ones, this avoids wise loan fees and interest. Offer to sign a loan contract if it makes them feel more secure.
- Getting a standard personal loan – Banks and credit unions offer installment loans at much lower rates. However, you’ll need good credit to qualify.
- Trying peer-to-peer lending – Sites like LendingClub connect borrowers and individual lenders for personal loans with reasonable rates. Again, good credit is key.
- Using a credit card – While credit card interest is still high, it’s way less than a wise loan’s 400%+ APR. But only use this option if you can pay the balance off in full when due.
- Employer advances – Some employers will advance a portion of your paycheck if needed in an emergency. The fees/interest are usually minimal.
- Payment plans – For medical bills, utilities, or other expenses – ask if they offer installment plans to break up payments interest-free.
- Crowdfunding – For certain circumstances, like medical expenses, crowdfunding sites can help raise needed money interest-free.
How Wise Loans Work
If you do decide a wise loan is your best or only option, here is how they work:
- You start by applying online or at a lender’s store. You’ll provide personal details (ID, income info, bank account numbers, etc.).
- The lender will review your application to verify your identity, income sources, and other qualifications. This takes just a few minutes.
- If approved, you get an instant loan offer specifying the amount, fees, interest rate, and repayment terms. Fees on a typical $200 loan may be $20-$30.
- If you accept the loan offer, the lender immediately deducts their fees from the amount being borrowed before electronically depositing the remaining balance in your bank account.
- When your repayment is due, the lender will withdraw the repayment amount from the same bank account electronically. Late fees apply if the payment fails or doesn’t go through.
- To extend the loan, most lenders will require you to physically visit a store when your repayment is due to renew the loan in person. You’ll pay another round of fees and interest.
It’s vital to understand the fees, interest costs, and due dates associated with a wise loan before accepting the money. Be sure you can make the payments on time to avoid penalties.
Wise Loan Requirements
Wise leaders have minimal requirements for approval, but you will need:
- Steady income – This is your source of repayment. Many lenders require a minimum monthly income, often around $1000 per month.
- Active checking account – The loan money is deposited into your bank account and payments are withdrawn from the same account.
- Valid ID – This verifies your identity. You’ll need to show a driver’s license, passport, military ID, or other accepted proof.
- Age of majority – Borrowers must be over 18 years old in most states and over 19 in some provinces.
- Contact Information – You need to provide your address, phone number, and email address for loan communications.
Having a poor credit history or no credit won’t disqualify you for a wise loan since there is no credit check. However, outstanding loans or other debts make approval less likely.
Managing Wise Loans Responsibly
If you do take a wise loan, committing to responsible management of the debt can help avoid some pitfalls:
- Borrow only what you can afford – Don’t take the maximum amount available if the payments will be a struggle.
- Understand the true cost – Factor in all interest and fees to know the actual cost of repayment before accepting the loan.
- Make payments on time – Mark calendar reminders and set up automatic payments from your bank account if possible. Avoid late fees.
- Pay down balances fast – Put any extra income toward paying off the balance early to reduce how much interest you pay. Don’t make minimum payments.
- Avoid back-to-back loans – Let the loan fully close before taking another. Consecutive loans lead to unmanageable debt.
- Have a repayment plan – Know exactly when your next paychecks come and allot funds from each to repay the wise loan to avoid renewing it.
- Don’t borrow for nonessentials – Get wise loans only for unavoidable emergencies, not simply to have extra cash on hand.
- Seek alternatives as soon as possible – After taking a wise loan, make it a priority to improve your credit and financial situation so future options like personal loans are accessible.
The Bottom Line
Wise loans provide a quick influx of cash when you have no other options, but the ultra-high interest rates make them a very expensive way to borrow. Weigh the pros and cons carefully for your situation before getting a wise loan. If you do take one, commit to responsible management of the debt and explore lower-cost alternatives like credit unions or peer-to-peer lending for any future needs. With prudent use, a wise loan can serve as a temporary bridge during financial hardship, but it’s critical to avoid long-term dependence on this extremely expensive form of credit.
He is the founder and owner of Ventures Money, a leading finance and investment website. With over 10 years of experience in the finance industry, Mustafa is passionate about helping everyday investors make smart decisions with their money.
After getting a lot of experience, Mustafa worked at several top investment banks before deciding to launch this site. His goal was to create an approachable, jargon-free resource for investing advice and market analysis.
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