The name of the game with payday loans seems to be “pay as much as you can.” It’s not that people don’t understand that they are expensive, but it’s more about playing on their desire to get out of debt.
There are many different types of payday loan lenders out there, and each one has its own set of fees and interest rates. The good news is that when you use a direct lender instead of an indirect lender (like a check cashing store or pawnshop) you usually won’t have any hidden charges like late fees or prepayment penalties. You also typically avoid interest rate hikes, so you know how much you will pay upfront for your loan.
You may be wondering what all the fuss is about a payday loan. If you aren’t familiar with them, here’s some basic information to help you decide if these short-term loans are right for you.
Why do I need a payday loan?
A lot of people take out a payday loan because of unexpected expenses. Whether you had car trouble and needed to repair it or you were in an accident and now need medical treatment, an unexpected expense can really put you behind. A payday loan may become necessary to cover those costs.
If you’re already in debt, you might be tempted to get a payday loan just because you can afford it. This isn’t advisable, especially if you are trying to build up credit history or save money to pay off your debts. Taking out a payday loan while paying down other bills could hurt your financial situation even more than borrowing from a payday lender.
Another common reason for taking out a payday loan is that you simply don’t have enough money in your bank account to cover an entire month of expenses. If you have a job, you should still make sure to keep at least three months worth of living expenses in your bank account.
If you’re in this situation, you may be able to apply for a payday loan through your employer. Check with your boss to see whether he/she would allow you to borrow against your future wages. Your employer may also offer additional benefits such as tax deductions. Some employers may encourage employees to open checking accounts specifically for payday loan purposes. If you choose to do this, you shouldn’t write checks from your personal account without first consulting with your employer.
When can I expect my paycheck?
One thing to consider when getting a payday loan is the timing of your next paycheck. You don’t want to ask for a payday loan before payday, because then you will probably have to wait until the following week to receive your payment. That means you’ll have to borrow money again during that time, which defeats the purpose of your initial payday loan.
It’s better to wait until after payday so you don’t run into problems. However, that doesn’t mean you can’t get a payday loan early. For example, if you are experiencing an emergency and you absolutely need cash immediately, you may be able to get a payday loan early in order to secure funds for your needs.
How does a payday loan work?
A typical payday loan works like this: Your lender contacts you by phone to complete your application. Once you fill out the application form, the lender will review your information to determine how much money you qualify for. Most borrowers qualify for between $100-$500, although larger amounts are common for those in high risk groups such as drug addicts and alcoholics.
After verifying your financial status, the lender will give you an approval number. You can then go online to the lender’s website and create an account. After logging in, you can either print out copies of your documents or scan them into a digital format. Then you send everything back to the lender and they process the paperwork. Usually, the whole process takes less than 24 hours.
Once the paperwork is approved, the lender will deposit the funds directly into your checking account. As soon as you have the money in hand, you can pay off your old loan and move on to the next payday. In most cases, the entire process takes less than two business days — sometimes even less than one.
In most states, the maximum amount that you can borrow is $500 per month. However, lenders are allowed to charge higher interest rates as long as you make payments within 14 days. If you miss a payment, you will accrue late fees and the total bill will increase.
The working of the pay loan will depend on the platform that we choose to take the loan. As the person will use the platform they will get the complete idea as how they can take the loan in effective manner. A person should analyse the option and get the returns. They can go through Money-Wise.org and get the detail.
What happens if you can’t repay your loan?
As mentioned above, the average payday loan carries a APR of around 400%. If you miss a single payment, the APR will double. It only gets worse from there. So, if you fall behind on your repayment schedule, you will quickly find yourself unable to pay your loan back in full. At that point, the lender will start to charge you a penalty called a collection fee.
Collection fees are calculated based on the balance owed plus any accrued interest. They range anywhere from 20% to 40%, depending on what type of loan it is. These collection fees can add up very quickly and cause your loan to balloon out of control. Collection fees can easily exceed the original loan amount if you continue to miss payments.
Fortunately, there is a way to avoid collection fees. If you agree to pay off your loan in installments of $50 or less every two weeks, the lender will waive the collection fee. There are also programs that allow you to make lump sum payments toward your loan balance. When using these alternatives, make sure to discuss your options with your lender beforehand.
Does it matter who provides my payday loan?
Some people prefer to deal with payday loan companies over other lenders because of their reputation for offering competitive interest rates and fast processing times. However, there are plenty of legitimate options available to everyone looking for a payday loan.
As long as you research the company thoroughly and verify all of the information you provide, you should feel confident using any payday loan provider.
Here’s a quick look at some of the top names in the industry:
Check Into Cash
LendUp
American Cash Advance
Cash America Pawn
For more information on payday loans, check out our article on tips for keeping your finances in order.