If you have ever needed an influx of cash quickly, you may have found out that getting a loan can be difficult.
Most of them, such as mortgage and business loans,are earmarked for very specific purposes that may not exactly align with what you are trying to do – and personal loans can be difficult to qualify for with a poor credit score, or otherwise take a long time to process. Due to this perceived gap in temporary coverage options, certain loan agencies have established specialized smaller loans, known as payday loans. While sometimes effective, these can be highly controversial due to their many, often unadvertised downsides.
Generally, payday loans are often loans for low amounts (averaging around $500) that have short repayment terms and high interest rates. They are often used to hold people over until they receive their next paycheck – hence, their name being “payday” loans. They are usually repaid in one bulk payment on the day that you receive your paycheck. But instead of charging interest on a monthly basis like a normal loan, they add up interest charges for every day that passes before you pay off the loan.
Payday loans are called different things, depending on what kind of agency is selling them. Some of their many names include cash advances, credit access, deferred deposits and more. But, they are all basically the same thing. On top of the interest rate that they charge along with the original amount of the loan, many payday lenders have one-time service fees that are factored in to how much you must pay at the end of the loan term.
There are a variety of reasons to avoid payday loans, in order to protect your financial stability and avoid predatory lenders. Some of the most common and relevant reasons include:
You should only ever consider getting a payday loan if you have a financial emergency, and cannot get funds to pay for that emergency any other way. But if that is the case, you should learn how to get one without becoming trapped in a cycle, as so many other Americans have. To prepare for a payday loan (if it is legal in your state), you must:
While you do not need a good credit score to get a payday loan, lenders will often do a bit of research to ensure that your information is correct, that you do not have an outstanding or unpaid payday loan already and that you are able to pay for your loan once you receive your next paycheck. Active-duty military members are also protected by regulations from the federal government, whose payday loan interest rates can be no higher than 36 percent APR.
Once you have provided the required information to your lender and paid their early fees, you will be able to receive information about your further payment options. Then, you can get your loan as early as the day of your application (although it usually takes at least one day to process everything).
If you can afford to do so, there are other ways to go about paying for a cash emergency. Some of these methods include:
It can be difficult to do some of these things, especially when you have had financial troubles in the past. However, it is crucial to consider all of your available options before you decide to take the risk on a payday loan – and if you do decide to take on such a risk, you must be aware of how to limit your spending and future debts as much as possible.