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What Are A Few Things To Know About Payday Loans?
Working people like us know how it feels when we receive our “passing through” pay. We all struggle to make ends meet just to put food on the table and pay our bills, right? But sometimes, our expenses outweigh the income that we receive. This is when we opt to avail of payday loans since they can assist us financially and make us breathe a little for the time being.
What is a payday loan?
When a borrower needs an immediate financial source, one can avail of this type of loan. Payday loans are loans that have a short-term period and are usually unsecured. It is a loan of $500 and below, which is payable in two weeks. The downside is that this loan type comes with a high interest rate compared to a regular or traditional loan.
Some financial experts say that this type of loan must be considered as a last resort. Creditors love the idea that debtors will grab on loan hungrily, even with a high interest rate, out of need and desperation. While it can help the borrower with an expense outright, one must still understand what a payday loan is and how it works for you. This is to avoid future problems with money and payments.
Advantages of a payday loan
Here are some advantages of availing of a payday loan:
- Funds are readily available for use.
- Approval of a loan is easy to attain, even if you have a bad credit rating.
- The borrower is not required to provide extensive documentation and other formal requirements.
- There are no rigid policies to follow; you only have to pay on time to avoid late fees and higher charges.
Disadvantages of a payday loan
Here are the disadvantages of a payday loan:
- Most borrowers cannot afford to be in a payday loan with its high interest rate and other fees. In the end, they will have to delay payment, and that incurs additional charges.
- It becomes a debt trap for borrowers who cannot provide full payment as intended, and so they extend or refinance.
- The borrower will always be in debt, and most of the time, the interest and charges will surpass the loan amount.
How a payday loan works
Knowing what a payday loan may cause for you if you cannot pay on time, will you still apply for one? If so, then you can take your chances and understand that a payday loan works this way:
- To apply for a payday loan, you may be required to issue a PDC or post-dated check in the amount of the loan, its interest, and other fees. The loan may be given to you directly in cash or an electronic bank transfer to your account.
- The term period can be anywhere from two to four weeks and is usually paid on a payday, hence, the name. If the loan is not paid on the due date, you must expect additional charges. If you have a PDC with the creditor, you have to tell him that there are no funds. Otherwise, your check may be cashed or deposited, and you will have to incur NSF or “no sufficient fund” fees. Fees will continue to pile up, and that is big financial trouble for you.
- The interest can be anywhere from 10 to 30 percent. Yes, that is huge. Some states in the US allow this type of loan agreement, while payday loans are not permitted in others. Companies that offer payday loans can charge ten to thirty dollars interest and fees to every $100 lent to borrowers.
Are there alternatives to payday loans?
This pandemic has brought the world down economically. It is the primary reason why so many people worldwide have applied for loans – to get by and survive. There are alternatives, though.
- Avail of a credit union low-interest personal loan instead of a payday loan. Become a member.
- Ask for an interest-free paycheck advance from your employer if this is available.
- Arrange a debt settlement program first if you will use the payday loan to pay a debt.
- Seek free credit counseling as it can equip you on the matter.
If there is no other choice, a payday loan can help you out quickly. Just pay it as soon as you get the funds on the next payday and never let it grow with interest. It may be challenging, but money management is key to staying afloat and avoid getting too much debt.