Spent a little more than you would like this month and looking to get over the immediate cash crunch till your next paycheck?
A payday loan might be what you need.
A short-term unsecured loan for you, it comes with a high-interest rate, and is usually offered by businesses than banks. Many payday loan lenders carry an annual interest rate that varies between 391% to 3,733% or more. Your lender can even charge you $21 when you borrow $100 for a 14-day period, which could mean an annual interest of over 14,000%!
The interest rate remains high as it’s a high-risk business and people often go in for immediate financial needs – when there seems to be few other options left. It’s ideal if you are finding it difficult to meet month-end expenses.
How Do Payday Loans Work?
You file a simple application form where you provide your identification and bank account details. Then, the loan gets approved and delivered to your bank account within 24 hours. Normally, most lenders would give a payday loan of around $500, though you could get a limit of up to $1000 or more.
Payday lenders take a postdated check as collateral, which includes the amount and added interest. The check is returned to you after you pay the borrowed amount with interest, at the end of the fixed period.
If you aren’t able to pay the total amount on the due date, the lender will still deposit the check. If there isn’t sufficient balance in the amount, and the check bounces, it just adds to the amount you have to pay. The maximum waiting period is up to five months.
Many US states have planned to put a limit on the amount that you can borrow so that the borrower isn’t deep in debt. In Toronto, Canada, for instance, the maximum legal rate for a $100 loan is $15 since January 1, 2018, or an annual rate of 3,724%.
Since people who are into payday loans borrow money from different lenders when a need arises, putting an account limit for every person can help protect them.
Why Do People Go in for Payday Loans?
While the high-interest rate may mean that banks are a cheaper alternative, the different benefits make it popular. Here is what makes payday loans a choice among millions of U.S. and Canadian residents.
- Short Processing Time
Once you submit the application, the documents are verified and the amount can be transferred into your account in less than 15 minutes. Even though lenders say that they can take 24 hours, you could have the money transferred to your bank in a few hours.
No bank or business one would give you a loan so fast. At the shortest, you’ll have to wait for at least two working days for a non-collateral loan and seven working days for a collateral loan.
- Helps You During Emergencies
Millions live from paycheck to paycheck and are often not prepared for emergencies. When in an emergency, you could get a payday loan and pay it back in two weeks.
- Easy Online Availability
No need to make a stop to your nearby payday loan lender. Get access to your loan by filling in an online application with your mobile phone, tablet, or computer. The process is hassle-free and requires few documents – it’s like carrying a bank in your pocket.
- No Credit History Check
Banks would shy away from offering you money if you’ve got a poor credit history. Payday money lenders will not. It doesn’t matter what your credit score is, as long as you can offer them the documents they need for processing your application.
What are the requirements to get a payday loan?
- Be at least 18 years of age.
- Have an open and active bank account where the amount can be transferred.
- A proof of income that assures you’ll be able to pay the loaned amount on time.
- A valid phone number.
- Any other requirements put forth by varying lenders.
The Top Advantages of a Payday Loan
Let’s take a look at the pros:
- Helps you get funds even with a poor credit history.
- No need to look to borrow money from friends and family.
- No credit check to worry about.
- You could get the money in less than an hour.
- Your finances are back on track in just a couple hours.
What’s Not as Great?
Here are some of the things you should worry about while getting a payday loan:
- Significantly higher rates than a bank.
- If you are unable to pay back the loan amount, it could significantly increase your loan amount.
- The practice of relying on payday loans could cost you a considerable amount in interest payments.
- Some even take another payday loan to pay the first one they took.
Alternatives to Payday Loans
Here are a few other reliable options to help you deal with your financial difficulty.
- Personal Installment Loan
It’s an unsecured loan that you can take from a bank or credit union. You have an installment option and you can pay back the amount in 90 days.
- Emergency assistance
Many local churches and charity organizations offer help to those in need, from paying mobile phone bills to groceries to a car loan installment payment. The US government’s Low Income Home Energy Assistance Program offers monetary assistance to households with low income during weather emergencies.
- Advance paycheck
Asking your employer could help. Some offer advance paychecks to employees that have been in the company for a while. It is your money, and you won’t have to return it or pay any interest. Ensure that you don’t abuse this liberty and start budgeting going forward.
- Credit counseling
Visit National Foundation for Credit Counseling to get free assistance on how you plan your monthly budget. You can also call 1-800-388-2227, and if you are already in debt, they even help you in developing a debt repayment plan.
Frequently asked questions
- Will taking a payday loan affect my credit score?
No, your credit score won’t be affected either when the lender checks your credit score or gives you the loan.
- Is the application process difficult?
No, it is straightforward and hassle-free. Once you apply, you get the loan within the next business day.
- Can I pay early?
The earlier you make the payment, the better it will be for you since this will reduce the accruing interest.
- How much money can I borrow?
It can vary by lender and by state but is usually at a max of $1,000.