No matter how prepared you are for a rainy day, there’s always the unforeseen that demands shelling out some extra cash. While the conventional way is to apply for a personal loan, the process might take some time to get approved. Plus, that is not an ideal option if you have a low credit score.
- That is where a payday loan comes in.
What Are Payday Loans?
People tend to seek out payday loans for short-term borrowing, and the borrowed amount is based on their next paychecks, hence the term “payday.” These types of loans can sometimes be referred to as “advance loans” or “check advance loans.” However, though short-term lending is convenient and useful as an immediate emergency fund, the lender will charge a hefty interest rate in exchange for that convenience.
The primary reason for the high interest rate is that you don’t have to provide any collateral for quick payday loans. Or from the lender’s perspective, they are unsecured personal loans, making it riskier for the lender to undertake this kind of lending.
Additionally, the inherent high interest cost associated with payday loans online may be regarded as predatory lending. That, among other pitfalls (such as hidden provisions and unforeseen added fees), could impose a debt trap on the consumers. Therefore, before deciding to sign up for one, remember to do your research and understand the total cost and terms embedded in the loan.
How to Apply for Payday Loans
Applying for a payday loan can be done conveniently both online (via internet) and in person. For the online method, you only need to visit the website of a trustworthy lender or submit your application on our website (available 24/7). Of course, you should perform your due diligence to determine a legitimate lending company.
In-person applications, on the other hand, require visiting a physical store of a payday loan provider. You’ll fill out a paper application, similar to the online form, providing the necessary details. Even though it involves more effort than the online application, the in-person method allows you to ask questions face-to-face and receive immediate assistance. Regardless of how you apply for the loan, always be fully aware of the terms, fees, and repayment schedule before sealing the deal.
As you look for an emergency fund, you probably want the process to be hassle-free. Luckily, obtaining a payday loan is fairly simple and requires minimal documents.
You must first indicate your current level of income by providing pay stubs, as the loan amount is typically derived from how much you earn. One thing to keep in mind is that, while you won’t be guaranteed to get the exact amount of your next paycheck, lenders typically arrive at the loan principal based on a percentage of your short-term future income. After that, the lender typically expects repayments after 30 days or less.
In addition, you won’t need to deliver any collateral – however, some lenders might use your wages for that purpose. But you do need to provide a government-issued ID and have an active bank account, for verification and disbursement purposes. Also, lenders don’t perform a credit check or consider your financial health when approving the loan, good news for those who still need to shore up their credit scores.
There are some other nuances that you might need to know. You must be at least 18 years old to apply for the loan. And, any fast payday loan that charges an APR excess of 36% will be prohibited from lending to active-duty military, as well as their spouses and dependents.
Online Payday Loans – A Quick Way to Get Money
If you are looking for immediate cash, the online method is the easiest way. The key advantage lies in the accessibility and ease of application. You can apply from the comfort of your own home or even on-the-go through your smartphones. With a straightforward process, you can quickly obtain the funds for urgent financial needs, such as unforeseen medical bills, a car repair, or any unexpected expense.
You’ll need to provide personal and financial information, including identification, employment details, and your bank account number. The website should guide you through the process, from providing the necessary documents to displaying all the terms and fees. With quick approval, the funds should be disbursed directly to your bank account.
The Interest Expense of Payday Loans
As you have probably noticed, the main concern regarding payday loans (online or at the direct lender’s office/store, it doesn’t matter) is the high interest rate, sometimes at an extreme level. For example, an annual percentage rate (APR) for the loan can climb as high as 780%, while the average rate can hover around 400%, according to the Consumer Federation of America. Some state laws restrict interest charges to a range between 5% to 30%. But some exemption provisions enable payday lenders to demand much higher interest.
One of the plus sides, however, is the rate is fixed. Since you usually have to make the repayment in a lump sum when the loan matures, the interest charge is not variable but rather fixed. Because of this, lenders might list the interest expense as a fixed flat fee (ranging from $10 to $30 for every $100 borrowed) as opposed to an interest rate. This might give you an illusion that the interest expense is not as expensive as it truly is, especially when the lender can replace 460% APR with only $17.4.
Legal Aspects Surrounding Payday Loans
Some background to the legal aspect surrounding payday loans:
In 2016, efforts to regulate payday lenders gained momentum during the Obama administration, with the implementation of new rules by the Consumer Financial Protection Bureau (CFPB) in 2017. These regulations aimed to shield consumers from the perils of “debt traps.”
Particularly, the rules comprised a crucial provision mandating lenders to evaluate borrowers’ repayment capacity and daily expenses before granting loans. They also necessitated lenders to furnish written notices prior to accessing a borrower’s bank account and restricted repeated collection attempts without the borrower’s consent. The Biden administration bolstered these regulations, introducing even more stringent guidelines on payday lending as of June 13, 2022. However, during the Trump administration, efforts were made to revoke certain provisions, a move met with both support and opposition.
Pros and Cons of Payday Loans
You should have a somewhat clear understanding of a payday loan by now. But to give you more clarification before deciding to proceed with one, here is the list of pros and cons of short-term lending.
- Immediate Funds: Payday loans offer fast access to cash, addressing urgent financial needs like medical bills or car repairs.
- Minimal Requirements: Lenders usually only require proof of income and an active bank account, making the loan accessible to everyone.
- No Hard Credit Check: Payday loans typically don’t involve credit checks, making them available to individuals with poor credit scores.
- Easy Application: Applying for payday loans is often straightforward and can be done online or in person.
- Short-Term Commitment: Borrowers are typically required to repay the loan within a few weeks, avoiding long-term debt commitments.
- High Interest Rates: Payday loans are notorious for their exorbitant interest rates.
- Debt Cycle: Borrowers might fall into a cycle of borrowing to repay previous loans, leading to a cycle of debt.
- Predatory Practices: Some lenders engage in predatory tactics, targeting vulnerable individuals and trapping them in a cycle of borrowing.
- Limited Loan Amounts: Payday loans usually offer small amounts, which might not suffice for larger financial needs.
Payday Loans Near Me
You can quickly find payday loan online or nearby providers by searching the internet. You should, however, shop around to look for trustworthy lenders and determine which one offers the most favorable terms and fees. If you are old-school and prefer going to a physical location (store), payday loan services might also be available through small credit merchants.
Cash Advance with Bad Credit – Is It Possible?
Quick online payday loans can act as the last lifeline for low-credit individuals. These loans demand minimal requirements (mentioned above) and cater especially to individuals with poor or no credit history. As the lender only assesses your income and bank details, you can expect a swift approval, if you are qualified. While convenient for urgent needs, remember that payday loans often come with high interest rates and potential debt traps, so careful consideration is advised before proceeding.
Same Day Payday Loans – Truth or Trick?
The idea of same-day cash advance is absolutely possible with payday loans. Upon verifying your income and bank details, lenders provide instant cash, either in-store or online within the same day. This immediate relief, however, requires you to issue a signed check or grant electronic access to your account. Repayment becomes due right after your next payday, typically in a fortnight, occasionally extending to a month.