Payday loans are becoming increasingly popular and are one way to borrow money fast, often excluding the difficult application process, which can be a great help for people facing financial emergencies. Although they are fast and seemingly trouble-free, it’s important to know what a payday loan is and what is expected from you when taking one out, so you can make sure you keep yourself and your finances safe when looking online or in store for these loans.
What Are Payday Loans For?
Typically, a payday loan is a small loan amount which can often be applied for and approved within just a few minutes online or in store. The amount loaned is usually smaller than a long-term loan and comes with higher interest rates than other loan products. They are usually expected to be repaid within a shorter period of time. Typically, a payday loan is repaid when the borrower’s next paycheck comes through; hence the name.
Most lenders allow borrowers to apply for loans in this form of between $100 and $1,000 or sometimes a little more. Because payday loans are a form of unsecured personal loan, borrowers will not be able to borrow as much as they can with secured loan options like title loans and mortgages, as from the lender’s perspective there is no asset acting as collateral, should the borrower fail to make their repayments on time.
How Do Payday Loans Work in Different States?
An application is made for the loan, which can be made through an online platform or a branch through a payday broker. The requested loan amount can come in the form of cash, a direct bank account deposit, or a cheque. It’s also important to know that there are different rules and regulations for each independent state, for example, payday loans in Alabama allow a maximum loan amount of $500, with a maximum payback loan term of 31 days, and Delaware permits a maximum loan of $1,000, with payment required within 60 days.
Some states completely prohibit the service. You can check all of the state’s regulations online at the National Conference of State Legislations webpage. Depending on the company, the loan amount and added interest are then expected to be repaid in a short time frame, which is often 14 days.
What Are the Benefits?
There are obviously benefits from receiving money instantly, especially when you are facing financial difficulties due to an emergency situation. The benefits include an easy application process, that often excludes getting a financial check, meaning that you can have poor credit and still be approved. The money can be in your hands on the same day as the application, which may relieve financial stress and allow you to get back on track.
What Are the Risks of Payday Loans?
You should always be certain that you will be able to pay back the loan by the date required and any consideration of paying the amount back with another loan should never occur. If you are unable to repay the funds within the timeframe, the lender will still expect the repayment. It is important to be aware of the high-interest rates that accompany payday loans, too. A person can be expected to pay between $10-$30 in interest for each $100 loaned.
This interest rate is what can cause a person to fall deeper into debt because if a payment is missed, the loan amount increases substantially and causes further financial stress. It is important to be mindful of the due date and be sure that you will be able to repay the loan on time to avoid further fees such as overdraft charges. There is also a chance that the payday lender forwards your details to debt collectors.
How Safe is a Payday Loan After All?
Payday loans can be a great way to help you in financial difficulty, such as for an emergency medical bill, car bill or perhaps to pay overdue rent (but, this should only be a one-off event). But, many people fall prey to loan sharks which often advertise payday loans in a predatory manner, and cause people to fall into serious debt.
It is crucial that you consider all of your options before applying for a payday loan. This is because not everyone who seeks payday loans are in the right financial position to be borrowing such a loan. However, payday loans which are used through reputable direct lenders or loan connection companies are safe to use. Just with any form of debt, it is important to use it properly and pay it back on time to avoid falling into debt.