Payday loans can offer a quick, easy, convenient way to relieve some of your financial burden. Here’s what to know about payday loans before you borrow.
Sometimes you may run out of cash and not know where to turn to. You may even just need some cash to survive until the next paycheck. An urgent financial issue can cause headaches and extra stress.
In these cases, you may opt for a payday loan to fix the financial problem. Payday loans can offer a quick, easy, and convenient way to relieve some of your financial burdens. Yet before you borrow, there are a few important things to note.
Here’s what to know about payday loans before you borrow.
What Are Payday Loans?
Payday loans are small short term loans meant to sort urgent financial difficulties. Usually, a lender may demand payment quickly and typically before your next paycheck.
Payday loans can be helpful even for people with a bad credit score or non-existent credit. As long as you have an income, you can agree with a lender to deposit an agreed amount of money into your account.
Despite the convenience of payday loans, they can put you into a larger financial mess. The cost of borrowing may be expensive in the long run, while some lenders may not be clear on some terms.
Let’s get into what you need to know about payday loans.
How Do Payday Loans Work?
Payday loans are as popular as cash advances, deferred deposit loans, check advance loans, or post-dated check loans. You may have noticed them in ads promising quick cash refundable on payday. But according to the FTC, you must pay attention to the details from the start of the lending process.
Here’s how payday loans works- the lender gives you the agreed loan amount for a check dated your payday. This check comprises the loan amount plus the borrowing fees. On the payday, they will deposit the check to recover the loan and the fees.
How Much Can You Borrow With a Payday Loan?
In most states, the amount you can borrow from a payday loan is between $300 and $1000. Varying payday laws across the states can also influence the cap and the amount you can access. It’s also important to base the borrowed amount on the state of your finances.
Where the stipulated payday loan amount is high, your lender may be curious about your credit history. They may also consider your income and expenses before arriving on the amount to lend you.
What Is the Cost of a Payday Loan?
Payday loans are typically costly because of the high number of high-risk borrowers. Varying states’ regulations also influence the ultimate cost of payday loans. According to the CFPB, the fees for a two-week payday loan can range from $10 to $30 for every $100 borrowed.
If you’re borrowing $500 refundable on the next payday, fees can cost you between $50 and $150. You may also incur debit card fees if the lender loads the cash into your debit card. Your bank may also deduct some charges if your account has fewer funds on the transaction date.
For an affordable payday loan, consider cctb payday loans. Here, you’re allowed amounts of up to $1500 on your child’s tax credit instead of salary. The rates are also fair and the repayment period is very flexible.
Consequences of Late Payments
Payday loans are usually a quick fix. They may sort your short term expenses, but they can’t clear your financial problems. You may end up in a payday loan cycle. Studies show 75% of borrowers take a new payday loan before clearing the previous one.
Some lenders may charge a late payment fee for the delayed payments depending on state regulations. Other states require an extension of the repayment period from lenders. An extension gives you more time to repay the loan without incurring extra fees.
What Happens When You Can’t Repay a Payday Loan?
Lenders can become a nightmare when you’re not cooperating with them. They can attempt several withdrawals in your account, which can cause you to rack up bank charges. Sometimes the lender can follow up with your friends or relatives to recover the money.
The best thing to do when you’re unable to pay the payday loan is renegotiating the terms. Your lender can extend the repayment period or suggest a rollover fee. The problem is each rollover can spike your loan costs.
What You Require to Get a Payday Loan
The basic requirements for a payday loan are an ID, proof of income, and a bank account. However, a lender can reject your payday loan application because of inconsistent or minimal cash flow.
Your income may not be enough to pay the loan and cover your expenses. Most lenders prefer borrowers with at least a monthly net income of $500 per month.
Some state requirements can invalidate your loan application. The lenders’ internal policies can also lock you out. Other reasons to deny you a loan include bankruptcy and outstanding loans.
How Do Payday Loans Affect Your Credit?
Payday loans may not boost your credit scores. This is because most lenders only focus on recovering their money. But delayed payments can damage your scores.
A frustrated payday loan lender may report default cases to credit bureaus. Sometimes, they can hire a collection agency that won’t hesitate to list your default.
Alternatives to Payday Loans
If you don’t want a cycle of debt, you may need to avoid payday loans. 81% of payday loan borrowers say if the loans were not available, they would cut expenses.
Other payday alternatives include borrowing from the employer and delaying some bills. You can also take a cash advance on your child’s cash benefit as recommended earlier.
When to Use Payday Loans
Don’t fall for the temptation to use the loans for ordinary utilities such as electricity or rent. This is what many payday loan borrowers do and it can put you into a debt cycle.
Opt for payday loans as a last resort when your cash has dried out. Explore the payday alternatives before visiting a payday loan storefront. Above all, use the loans well. That’s for short term and urgent financial emergencies such as medical needs.
Take Note on What to Know About Payday Loans
Here’s a bonus tip on what to know about payday loans- before taking a loan, think about all the repercussions. Make sure you need the loan and you can be able to repay it without straining yourself. Go through the loan agreement to understand all the requirements from the fees to the repayment installments.
Understanding different types of loans when you’re in financial hardship can help you with not digging the hole deeper. Check out more articles on our blog.