Did you know that over 12 million people take out payday loans annually? A payday loan is a quick monetary solution for individuals who live paycheck to paycheck. If you have been considering applying for a payday loan, here are five things you need to know to determine whether or not this type of lender financing is right for you.
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Payday loans are unsecured
Suppose you need a quick monetary solution but do not want to borrow against valuable items like your house, car, or appliance. In that case, you should consider taking out a payday loan, as it is often unsecured.
Instead of asking for collateral, the lenders request permission to access your prepaid card, credit union, or bank account on the due date and deduct what you owe. Other lending companies will demand that you write them a check for the principle and the interest. They will then cash this amount when the loan is due.
A payday loan has a quick approval process
One of the most significant reasons why payday loans are so attractive is the ability to secure the lender financing within 24 hours. Unlike a bank loan, where the lender must verify your documentation requirements and check your credit history before processing your loan, payday loan lending companies approve or reject your loan immediately. All you have to do is submit basic details such as proof of regular income, identification card, birthdate, bank account, and permanent address to get your payday lender financing within the same day.
A payday loan is a short-term loan
Unlike personal loans, which often have flexible terms of at least a year and can even run for several years, payday loans are short-term. Most payday loans need to be repaid within a few weeks. You must pay the total amount, the principal, fees, and interest by your next paycheck. If you default on payments, you incur additional costs like:
Insufficient funds charges: You attract a non-sufficient fee if you lack enough cash in your bank, credit union, or credit card account when your lender tries to electronically deduct money or cash your check once your loan is due.
Return: These are charges incurred when you pay your payday loan past the due date.
Payday loans have a fixed interest rate
Since you are supposed to pay off your payday loan in one lump sum on your payday, the interest rate is often fixed. Most lending companies do not express their fees as an interest rate. Instead, they charge fixed flat fees, usually $10 to $30 for every $100 taken out.
You can secure a payday loan with a bad credit
Unlike traditional lending companies such as banks that heavily rely on your credit history to gauge whether or not you qualify for lender financing, payday lenders do not check your credit score. This means that you can secure lender financing even with bad credit. However, if you default on payments, the payday lending companies will submit your details to the collections, negatively impacting your credit score.
Endnote
A payday loan can effectively solve urgent short-term expenses as you do not need collateral or an excellent credit score to secure the loan. However, they attract high-interest rates and fees. Before taking a payday loan, consider the above information to make the right financial decision.
