Are you a student, a recent graduate, have a low-paying job or running short of money at the end of the month? Whatever the situation may be, being cashless is pretty tough and it becomes hard to manage day-to-day expenses. If you’re also stuck in the same loop and looking for some financial aid, then payday loans are the right option for you.
Payday loans are high-cost loans that are granted for a small amount like $500-$1,000, you’ve to pay it back by your next paycheck. All you need for a payday loan is ID proof, income proof, and a bank account. Also, your age should be 18+. Based on the lender, you may be asked to provide your Social Security Number. Usually, this type of loan benefits people who have bad credit or no credit at all. Though a majority of financial advisors recommend going for other options of financing.
How do payday loans work?
Payday loans are very quick, so as soon as the lender is done verifying your account information, they’ll provide the cash in as less as 15 minutes if you are collecting from the store. If you’ve completed the entire process online, then most probably you’ll get the loan in your bank account the very same day.
Usually, lenders ask for authority to withdraw the money automatically by the due date or a signed cheque is needed for their security. The span of a payday loan is till your next paycheck, therefore it must be returned in between 2 weeks to 1 month.
If you have taken the loan from a store, you will get an appointment for the due date to pay the loan. Any failure to do so would give the lender the right to look after other means to withdraw the due loan money in addition to the interest charges.
What are direct payday loans?
Direct and online payday loans are granted straightaway by a payday lender. Sometimes a lender may opt for a broker that processes loans based on the highest bid. Thus, it’s advisable to go for the direct lender option as you won’t have any idea about whom you’re providing your financial information if a broker is involved.
Also, apart from fraud and unwanted troubles, there is a higher probability that the overall cost of your loan may increase.
Cost of getting a payday loan
According to the Consumer Financial Protection Bureau, you are usually charged approximately $15 for a $100 loan. So if you’re taking a 2-week loan, the Annual Percentage Rate (APR) is a whopping 391 percent — huge, isn’t it? If the entire loan isn’t repaid by the first paycheque, an extra fee is added to the repeating cycle.
Payday loans are not that magical and convenient. You’ll end up paying a bigger interest amount than the entire loan if you miss payments. A survey showed that, on average, you may pay almost $520 in the name of a fee for every $375 borrowed. Quite a price, isn’t it?
How much can you get for a payday loan?
The amount you’ll get mainly depends on your financial condition, the state you live in, and its financial laws. In most states, the amount varies somewhere between $300-$1,000.
In many cases, payday lenders overlook your repayment ability or any other financial debts. Therefore you might end up overextending yourself financially which in other words means that you may have more debt than you can afford.
Paying back payday loans
Paying back this loan won’t help you improve your credit score since most lenders don’t report your timely payments to credit bureaus. But, consider paying back on time, as your credit score is still at risk of damage. Payday lenders may not report your timely returns, but they’ll definitely file a complaint if you default or sell your obligations to a collection company, which will directly impact your credit score.
What if you don’t repay a payday loan?
You’ll be charged a late fee or fees for having nonsufficient funds based on the lender and the residing state. Despite you having a rollover option to postpone the due date, a minimal amount of charges will always be there. Failed and untimely payments can also result in bank fees. Also, if the loan turns into bad debt, it’ll be sold to a collection agency, which will be worse!
Alternatives to a payday loan
Ask your bank for a small loan
Consider asking your bank for a small loan amount. Most banks in the US give them. Bank of America’s short-term funds for emergency expenses or US Bank’s Simple Loan are good if you’re an existing account holder.
Mobile Applications such as Dave, Earnin, etc. offer interest-free loans on your paycheck. In fact, up to two days ahead of your income day in some cases. The only thing you need to consider is their eligibility requirements and the maximum amount qualified to borrow.
You can also get a Line. Line gives interest-free cash for your emergency needs. All you need to do is subscribe, get instant cash and pay it back later. Get money with no credit checks or income restrictions.
Get a personal loan
A personal loan has a lesser APR compared to a payday loan, making it a feasible option to consider. Credit unions typically provide lower interest rates loans for bad credit score holders. However, you have to be a member in order to attain it.
Ask your friends/family
This is the easiest, safest, and interest-free option to get financial help. Asking for help from friends or family will give you the flexibility to repay the amount. You can also plan to ameliorate your financial condition.
The bottom line
Payday loans are risky in nature, thus consider your options and make an informed decision that you won’t regret. In case you decide to take a payday loan, make sure to follow the deadlines. Avoid any hassles and as long as you’re able to do that, you’re good to go!