Everything You Need to Know About Payday Loans
Not having a single dime in your bank account is every person’s biggest nightmare.
Fortunately, there are a handful of ways for you to get money in an instant. Applying for a PAYDAY LOAN is one of them.
Is it the most ideal solution to pursue such loans, or are there better alternatives you can use to remedy your credit difficulties?
Let’s find out!
What Is a Payday Loan?
A payday loan is a short-term loan wherein payday lenders put up high-interest credit based on your income.
It is also referred to as a cash advance or check advance loan because they serve as a payday advance to your upcoming paycheck.
The payday loan is the more popular option for most borrowers because they are easier to access online than a title loan and a credit card cash advance.
These loans usually go for small amounts because most states have laws that set the loan amount to a maximum of $500.
This is because the interest rate on payday loans reaches triple-digit figures.
Important Takeaways to Remember
- The amount you can get will depend on how much you are earning in each paycheck.
- Payday loans are SHORT-TERM loans ONLY.
- Payday loans DO NOT require a COLLATERAL (e.g., house, car, etc.).
How Have States Regulated Payday Lending?
Payday loans have been regarded as one of the most dangerous loan types, which is why the Obama-led government had to put in some laws for the proper regulation of payday lending.
In 2017, Richard Corday, the director of Consumer Financial Protection Bureau (CFPB), set some rules to protect borrowers’ rights. [R]
These rules included the following:
- Your lender SHOULD have a written notice/permission before getting your bank account information.
- MANDATORY UNDERWRITING PROVISION: In some states your lender MUST determine your ability to repay the payday loan
The Consumer Financial Protection Bureau, under the Trump administration, came up with rules that attempted to hinder the implementation of the 2017 rules.
It even tried to cancel the mandatory underwriting provision.
In 2021, we’ve transitioned to a Joe Biden-led government, so expect the new leadership at the CFPB to implement stricter regulations for payday lending.
How Can You Get a Payday Loan?
States may have different loan terms and conditions, but the online payday loan process STAYS SIMILAR no matter which state you are from.
Here are steps you and all borrowers must follow to obtain a payday loan:
- Head to the payday lender/loan company’s website.
- Fill up the necessary data on the application information sheet (personal information, income details, contact information, etc.).
- Prepare to surrender the required documents.
- Call or email the customer support system if you stumble upon any problems.
- Wait for your payday lender to approve your loan application.
Once you have accomplished these four steps, it’s time to play the waiting game.
There’s no need to worry about a long waiting time because most payday lenders will review your application ASAP!
If approved, your lender usually deposit the payday loan money to your checking account in a span of 24 hours or less.
What Requirements Do You Need For an Online Payday Loan?
Not all payday lenders will check the paperwork, so you may have to consult with your lender regarding the terms and conditions.
However, it pays to have these ready to ensure a smooth payday loan application.
- Proof that you are 18 years old (according to the Consumer Financial Protection Bureau)
- Checking account/bank account information
- Photo ID
- Email address
- Proof of income
Why Would You Need to Apply for a Payday Loan?
There are a handful of reasons why you should consider pursuing payday loans. It may not be the only option, but here are a couple of short-term situations where payday loans can come in handy.
We can’t deny the presence of emergencies and unforeseeable events. These include:
- Car accidents
- Hospital bills
The situations may differ for each borrower, but a payday loan is always available to help you pay the emergency expenses.
Let’s keep it real. There are many living expenses that you have to pay. Rent, groceries, utilities, and repairs are some of the many things you need to consider.
If you live in a state with a high cost of living, you may have to pay more than expected. FAILURE to pay bills on time may result in higher fees, thus putting you in a massive financial deficit.
Consulting any of the available payday loan services will help you stay afloat, but be sure not to be overly reliant on such loans all the time.
What Should You Watch Out for When Applying for Payday Loans?
Payday loans may be the easiest type of loan to access, but these are also the most dangerous. Here are some reasons why this is such:
We’re certain you want to be in a place where each lender charges you the right cost. Sadly, that is not always the case.
PREDATORY LENDING is a practice that refers to a payday lender applying abusive practices that involve unfair loan terms and high-interest rates for every borrower. [R]
You need to stay away from these lenders because you lose a lot of money if you consider doing business with such people.
“How do predatory lenders make their way to me?”
- They use the elements of deception and aggressive coercion to get their way and force you to pay unreasonable loan amounts.
- Some might even have access to data sources and your personal information, so you have to THINK TWICE before considering going for payday loans.
Inability to Repay the Loan
A payday loan may be one of the best short-term solutions, but there’s a price to pay for the convenience.
Finance charges usually range from about 15 to 30 percent of the borrowed money. These may seem small at phase value, but this can increase the annual percentage rate (APR). [R]
The exponential rise may even reach the triple digits threshold.
This means you’ll have to pay a fee that involves a HIGH-INTEREST RATE when applying for a payday loan.
The high fees may lead you to extend the deadline of the loan payment. The more extensions you ask, the more fees will continue pilling up.
What Are Some Alternative Options to Payday Loans?
The good thing about credit cards is they have lower interest rates than check advance loans.
You may want to use your credit card if you are in dire need of money. However, be sure to check how much you are spending to prevent crushing credit card debt.
You will need a bank account with good credit to qualify for personal bank loans. [R] The higher your credit score, the more money you can borrow.
Most loan lenders will require you to repay the cash monthly.
Payday Alternative Loan
A payday alternative loan may be a more feasible option if you are part of a federal credit union for one month or longer.
It allows you to receive approximately the same amount you would get with payday loans, but the repayment period is much longer.
Most states allow you to repay the loan after 6 months.
You can opt for a paycheck advance if you don’t want to borrow from payday lenders. It may also save you some money because cash advances have lower interest rates than payday loans.
The only drawback is it will cost more than a credit card because of the expensive fees and rates. However, a lot of borrowers like this method because of its quick funding and instant approval. [R]
Frequently Asked Questions
Can I Still Apply for Payday Loans Even If I Have Bad Credit?
Most lenders will still conduct a credit check for assurance before handing out loan approvals.
However, you won’t have to worry about bad credit because most lenders DO NOT REQUIRE a high credit score when you apply for payday loans.
What Happens If You Cannot Pay the Loan Amount on Time?
We hate to be the bearer of bad news, but you might be forced to pay additional fees to your lender if you can’t repeat the loan on the due date.
Most states charge either a late fee or nonsufficient fund fee. You can ask a credit access business for an extension or loan refinancing, but expect the cost of your new loan payment to increase.
Payday loans may be a popular option for securing short-term cash, but it is not necessarily the best solution.
The risks may outweigh the benefits if you do not play your cards right.
The choice is still yours, but we highly recommend you pursue the alternative options so that you can avoid a high-risk, high-reward scenario.
Did this article interest you? Let’s keep the discussion going in the comments section. If you have any questions or inquiries, please feel free to contact us for more information.