What Everyone Needs To Know About Payday Loans

In the modern world, things can get pretty tight from time to time. You might need to pay for a car repair or buy a new suit for work, but do not have enough money in your bank account to do so. That’s where payday loans come into play.

These small loans are intended to be paid back when you receive your next paycheck (hence the “payday” part). But they come with some hefty fees and interest rates that make them expensive when used as a long-term financial solution.

If you find yourself in a tight spot and require fast cash, read on to learn everything you need to know about payday loans.

How Do Payday Loans Work?

Payday loans are small, non-secured loans that allow you to borrow a fixed amount of money. You repay the amount borrowed plus a fee (known as interest) on your next payday.

You will also be charged additional fees if you are unable to repay the loan on time. The premise of payday loans is to give you a short-term solution to your cash flow issues.

If you need $300 to cover an unexpected car repair, but you only have $200 in your checking account, a payday loan can help you bridge the gap. However, they can be a risky type of borrowing, as they usually come with high-interest rates and fees.

Most payday loan companies will give you a loan within a day of applying. You may have to provide proof of employment, a bank account, and a valid government-issued ID to obtain a payday loan.

What Are the Benefits Of A Payday Loan?

Flexibility

You can choose when to repay the loan. It just has to be on your next payday.

Convenience

These types of loans do not require a credit check, and you can often get approved online.

Speed

You can get a payday loan within a day.

No Collateral Required

You do not have to pledge anything as collateral for a payday loan.

Low Rates

You may qualify for a lower interest rate if you have a bad credit score. You may also qualify for a short-term jump-start loan that is lower in rate than a standard payday loan.

What Are The Drawbacks Of A Payday Loan?

High-Interest Rates

The average annual percentage rate (APR) on a payday loan is almost 400 percent. If you cannot afford to pay back the full amount on your next payday, you could end up paying even more in interest charges.

No Long-Term Solution

Payday loans are not intended to be long-term solutions. They are meant to be short-term solutions to your financial problems.

No Equity

Although you may be able to take out a low-interest payday loan with no collateral, if you cannot repay the loan, you may lose your credit rating. Therefore, you will have no credit to use for other necessary purchases.

Risk Of Losing Your Paycheck

When you get a payday loan, you agree to repay the loan on your next payday. If you cannot repay the loan, the payday lender can come after you for your paycheck.

When Is A Payday Loan Not A Good Idea?

• If you cannot repay the loan according to the terms of the contract.
• If you are unable to pay off the loan quickly. Many payday lenders will extend the length of the loan, but charge you a higher interest rate.
• If you want to build or repair your credit.

How To Avoid Falling For Predatory Lending Practices?

Shop Around For A Lower Interest Rate

The average interest rate for payday loans is about 400 percent. If you can find a lower interest rate, you will have a better chance of paying off the loan without falling behind.

Ask About Fee Waivers

Most payday lenders will waive the fees if you agree to a long repayment schedule. However, it is better to avoid these high-interest loans altogether.

Shop Around For A Short-Term Loan

If you need a short-term loan to cover an unexpected expense, you may be able to find a better deal by applying for a high-interest short-term loan. Be careful, though, as some short-term loans come with extremely high-interest rates.

Get Help From A Credit Counselor

If you are in a financial crisis, a credit counselor can help you explore your options. You may be able to get a lower interest rate on a short-term loan or lower the amount you owe on your payday loans.

Final Words

A payday loan can be useful in an emergency situation, but it comes with very high-interest rates and fees. You can reduce the risk of falling into a cycle of debt by only taking out payday loans as a last resort. Additionally, it’s important to shop around for a loan with the lowest possible interest rate.