What Is a Payday Loan?
Payday loans are short-term loans that are often used to help people get through difficult times. It’s a form of cash advance that are intended to help you get by until the next paycheck arrives.
Despite the fact that they are typically for small amounts, they are among the most costly loans available.
Many people take advantage of payday loans provided by lenders (especially non-banking institutions). These businesses heavily advertise to people who are struggling to make ends meet on a monthly basis.
Warning: Payday loan fees are very high, ranging from $10 to $30 for every $100 borrowed. When compared to credit cards, which typically have an APR of about 20% on the high end, this can equate to an APR of 400% or more.
However, once you start taking out payday loans, it’s easy to become reliant on them. Make sure you understand the costs and risks before using a payday loan.
How Does a Payday Loan Work
Most payday loans are for a few hundred dollars and must be paid back within a matter of weeks.
To obtain a payday loan, you must usually write a check for the amount borrowed plus a charge. You could leave the check with the lender and they will cash it when you are ready to repay.
Payday loans are generally much more costly than conventional loans. You could end up paying an annual percentage rate (APR) that reaches 100% several times. You may, for example, pay a $20 fee to borrow $100 for two weeks.
Depending on the words, that amounts to an APR of more than 500 percent.
Some of the best online payday loans have a straightforward application process and few conditions. They will usually check to see if you have:
- An active bank account, or a prepaid card account
- A job or other verifiable source of income
- A valid ID proving you are at least 18 years old
You provide your identity, banking information, and other information, and once accepted, you should have your loan funds within 24 hours.
Payday loan companies go by a number of names, and each one has a unique method for lending and raising money. However, they all make money by charging upfront loan fees and interest on existing loans.
Postdated checks can be accepted as collateral by payday lenders to be deposited on the next payday (or another agreed-upon date).
Note: Many states have been working on passing regulations to place caps on the allowable interest rates and help out consumers that rely on these loans.
Payday lenders frequently offer the option to roll over the loan for a fee. So, if you pay $30 for a $200 loan and then roll it over when it is due, you’ll be charged an extra $30 fee, making you owe $260.
A payday loan might be a good fit for you if:
Bad credit is an issue
You request fast cash in as little as 24 hours
You can make a repay in full within a few weeks
You don’t need a loan with a repayment plan
You only need a small loan amount
Payday Loans vs Installment Loans
There are several ways to obtain cash when you are in need of it.
Payday loans and installment loans are two of the most popular forms of advances you might have heard of. The two are diametrically opposed, with installment loans being the much better choice if you have access to them.
Here are just a few of the differences:
|Payday Loans||Installment Loans|
|Usually small amounts||Can be large amounts|
|Very high APR||APR depends on loan type|
|Minimal requirements||More requirements like credit score|
|Can be rolled over for additional fee||Payback is over a set period|
|Borrowers often become dependent on these loans to make ends meet||Not designed to depend on them indefinitely|
Alternatives to Payday Loans
If you don’t want to apply for a payday loan you can opt for these alternatives:
- Create an emergency fund in your savings account.
- Develop your credit so that you can borrow from conventional lenders.
- Keep a credit card on hand in case of an emergency.
- Obtain a signature loan (also known as an unsecured loan) from your bank or credit union.
- Take on a part-time job to supplement your income.
- Talk to your lenders about a payment plan or loan modification.
- Examine overdraft insurance options for your checking account.
- For a better deal, consider using peer-to-peer lending platforms.
Payday Loans from a Bank
Banks have moved into the payday loan industry, most likely to earn more revenue.
While traditional bank loans that require you to qualify based on your credit, income, and assets can be a better alternative, bank payday loans are no better than any other payday loan.
They may go by a variety of names, but they’re still expensive and risky.
In reality, payday loans from banks can be much worse than payday loans from payday loan stores because the bank has access to your checking account and you would agree to allow them to withdraw money from your account to repay the loan.
You can have more power over how and when your money leaves if you borrow elsewhere.
How to Apply for A Payday Loan
In order to pre-qualify for a payday loan, you must be at least 18 years of age. Additionally, you may need to show that you are employed or that you have a regular source of income.
The amount of money you are able to borrow is generally be based on your income. There are no restrictions regarding how you choose to use the funds from your online payday loan.
How To Apply for a Payday Loan
Compare payday loans online from trusted lenders and choose an offer that works for you. Be sure to compare fees and interest rates.
Applying for a payday loan online is easy. Simply choose the offer you want to apply for, and send in the required information and documents.
Your Application Is Assessed
Your application will be assessed and this can be as quick as getting an approval the same day.
Once approved, the funds will be paid to your bank account.
If you find yourself in a season of life where you need urgent funding it is important that you make sure you are borrowing responsibly.
Payday loans are not the cheapest way to borrow money. However, they do have their place as they can help those who need money now and those with bad credit.
As with any loan, you are expected to repay your payday loan upon the agreed upon date to avoid incurring penalties or extra fees.
What You’ll Need
In order to be approved when applying for payday loans online, you will need to provide the following information:
- Your full legal name
- A number where you can be reached
- Proof of a steady source of income
- An active checking account in your name
That’s all it takes! Most people are able to complete the application for an online payday loan within just a few minutes.
Lending decisions are made promptly, ensuring you do not have to spend a lot of time wondering and worrying about your approval; if your loan is approved, you could have the funds deposited into your account within just a few hours.
Payday Loan FAQs
How does my credit score affect my appliaction?
Generally, your credit score will not be a factor in determining whether you will be approved for a payday loan. This is why many people prefer taking out payday loans online versus borrowing through traditional lending routes.
Even if you have bad credit or you have had credit problems in the past, bad credit payday loans may be still available.
How much can I borrow with a payday loan?
You can typically borrow small amounts up to $5,000, although some lenders allow you to borrow more.
How fast can I get a payout?
Payday loans are usually paid the same day, or the next business day.
How much does a payday loan cost?
Payday loans generally charge a dollar amount or percentage per $100 borrowed. Depending on your state law and the maximum amount your state allows you to borrow, this fee could range from $10 to $30 for every $100 borrowed.
A fee of $15 per $100 is typical. For a two-week loan, this equates to an average percentage rate of nearly 400%. So, if you needed to borrow $300 before the next payday, it would cost you $345 to repay it, assuming a charge of $15 per $100 borrowed.