Have you been wondering how payday loans work?
There are times in our lives when we get slapped in the face with unexpected expenses that strain our finances for a while. We may not have anyone to turn to, and your emergency funds may have already been depleted if we had one. Just when you least expect it, your car may break down and being able to pay for repairs between paychecks may not be possible unless you get a loan. Moreover, Americans are so deep in debt, that even those who have credit cards, usually exceed the credit limit or are close to it in no time at all, and therefore, have no way of meeting the unforeseen.
Once pulled under the wheel of unexpected financial predicaments, many people turn to payday loans to finance their short-term needs. Here is a bit of knowledge that may help you navigate the waters of a payday loan in case you ever need it.
What is a payday loan?
In basic terms, a payday loan may be defined as a relatively small loan amount which is paid to you by a lender with the security backup of your paycheck. In other words, the loan is secured by your future paycheck. If you are asking yourself how much you can get from a payday loan, the answer to that depends on the amount of money you earn as stated on your paycheck. It can be a lesser amount, but it is typically as large as your paycheck or less. However, in the US, state laws determine the limits or maximum amounts of a payday loan. Although most payday loans are typically between $400 to $500, they can be as high as $1000 or higher, depending on the size of your paycheck.
How to apply and receive a payday loan
Nowadays, you don’t have to travel outside your place of work o your home to apply for and obtain a payday loan. Applying for a payday loan is a simple process you can start and finish from anywhere as long as you have internet access. However, if you are old school and would rather take care of business in person, there are many locations open during the day, night and weekend where you can apply in person.
What you will need to have with you is some basic information to facilitate the loan process. To begin with, every borrower will need to provide proof of employment. This can be done by showing pay stubs of checks received within the last month, weeks, or days. In some cases, the person must have at least two weeks at the current job to be eligible for a payday loan.
The second requirement is to turn over a signed check or sign an electronics transfer agreement on a specific date from your bank account. This will provide the lender with a payback instrument once the loan is approved. The borrower will usually have from two weeks to a month to pay the loan back. The payback date will be determined by you and the lender on a biweekly, weekly, or monthly, basis, depending on your pay cycle.
When applying in person, you will have the cash in hand immediately after approval. On the other hand, if you are applying online, it could take up to 24 hours for the electronic deposit to be made to your checking account. Sometimes, you can pick up the loan in person at a specific location after applying online. Most payday loans are deposited into checking accounts.
On the downside, there is no guarantee that a payday loan will be approved even when you have a job. It may be the case that you have outstanding payday loans, bounced checks, or not enough income. If you are deemed as a high-risk borrower, chances you’re your application will be denied.
How much does a payday loan cost?
Now that you know what a payday loan is and how to apply, the next question most people ask is how much it costs. This can be a deterrent to getting a payday loan since the fees and interest you must pay may not be worth the expense. High-interest rates characterize payday loans. It is often the case that people who have no other options turn to payday loans for help. Once you have more than one outstanding payday loan, it may be difficult to get out of the cycle. In such cases, payday loan relief is in your best interest.
It is not uncommon to pay up to 15% per every $100 borrowed. For example, if you borrow $500, that would be $75 plus the principal that must be paid at the end of the loan term which may be in two weeks. If the loan is not paid back on time, fees and more interest will apply. Failure to pay the total amount due will result in collection actions and more fees and interest plus a negative report on your credit. In extreme cases, defaulting on a payday loan will have serious repercussions such as a lawsuit and even more damage to your credit score.
When possible, it is best to avoid paying fees and high interest on a payday loan. But not everyone has the option of acquiring a personal loan from another source. Payday loans have been accessible for decades since the offer a short-term solution to problems when you need it most. The accessibility and ease of applying and receiving a payday loan make payday loans worthwhile even when you have to pay fees and high interest on the loan.