You used to be able to go to your local bank to ask for a small, short term loan when you had sudden, unexpected expenses, like needing new tires on the car or covering unanticipated medical bills. But today people use credit cards to act as short term loans, which means few banks will offer this kind of financial assistance. Even if you need cash, you can use your credit card in an emergency to receive a cash advance.
For people who either do not want to use their credit cards, are in credit card debt, or simply do not have credit cards, one of the only options left are Payday Loans.
What is a payday loan?
A payday loan is a short term loan between the day you need the cash and your next payday. These loans are intended for people who need to borrow money for a short period of time. They should only be used for unexpected expenses or temporary income reductions.
Payday loans are usually for amounts under $1500. If you need to borrow more than $1500, you should look into other kinds of financial assistance (like personal loans).
Payday loans are meant to provide short-term credit, but are not intended for frequent use. However, this doesn't mean a payday loan lender will turn you away if you choose to use these services often.
How do you qualify for a payday loan?
Each payday loan agency varies in the requirements from borrowers, but the most common qualifications include:
Proof of steady income
Proof of an open bank account
Proof of identity
Proof of residency
Credit history is rarely a factor when it comes to being approved for a payday loan, which is one of the reasons why it is so appealing to many people in need of an advance.
How do you repay a payday loan?
Most lenders require you to write a post-dated check when you make the loan. The check will not be posted to your bank account until the date on the check. You can also make cash payments on the loan before it comes due. Some lenders will set up automatic payments, allowing them to debit the amount out of your bank account.
What is the interest rate?
Interest rates are usually pretty high, but they vary depending on where you live. Some states have passed bills that put a cap on how high payday lenders can make their interest rates.
While a high interest rate isn’t a huge problem if you pay the loan back right away, it can really cost you a lot of money if you need to extend the amount of time to repay the loan.
How does a payday loan work?
Once you are approved for a payday loan, you write a check for the amount you need, plus the fee for the loan. The loan agency either gives you cash for the amount you borrow or deposits the amount into your bank account.
Here is an example of how a payday loan works:
You need to borrow $150 for two weeks, until your next paycheck, so you decide to get a payday loan. You can either go to a payday loan agency or fill out an online payday loan application. Once you qualify for the loan, you will promise to pay the agency $175 (the $150 that you need to borrow, plus a $25 fee to borrow the money). This promise is made either by you writing a personal check for the amount or by providing the lender with your bank account information to set up an automatic payment.
When your next payday comes, you have a couple repayment options:
The lender deposits your check, and the money comes out of your bank account.
You pay the lender back in cash, and they return the uncashed check to you.
You extend the loan, and the lender charges you another financing fee.
You agree to electronic payments, and the lender automatically debits the money out of your bank account.
Where do you get a payday loan?
There are many physical payday loan locations you can visit to fill out the paperwork. Most of these places advertise their services as “cash advances.” There are also many payday lenders available online, so you can easily find a list of them when you do an internet search for payday loans.
