Payday loans are available everywhere nowadays. At any local mall to internet, there has been a growth in payday loans industry. But what they actually are? Are they not good, like it is said by a few people? Here are some of the answers that you might be in search of about these loans.
What payday loan actually is? These loans might be a costly option. Borrowers need to be cautious before using them and the amount should also be paid back the soonest possible. Usually these loans are priced at fixed fee and that fee is a representation of finance charge for borrower. As the term for such loans is short, borrowing cost can be really high. As a guarantee for the loan, pre-dated check has to be provided by the borrower or, alternately, debit authorization can be another option.
How do payday loans work?
Consider a scenario where you broke down your car and want to take a £300 cash loan from a payday lender to get the car repaired. A post-dated check will have to be written by you amounting to £340 which is payable to your lender. This also covers the amount of finance fee. This information is provided online at the time of applying the loan online. After this you’ll get £300 from lender for specific period. As soon as the specified period is ended, you’ll pay £340 cash to lender. If you’re unable to pay the full debt when the term ends, additional finance charges and fees will be charged.
Who can use payday loans?
Normally, anyone having a checking account besides some steady income can get payday loans. It’s, however, most commonly used by those who can’t access savings accounts or credit cards for using such lender. As no credit check is needed, people having credit problems or no credit usually find these loans beneficial. Recent immigrants and military personnel also use payday loans commonly.
How they are beneficial? Payday loans turn out to be a handy option for getting cash in emergency in case no other option is available. For instance, they can be used for fulfilling temporary and immediate financial needs like car repair, medical bill or something similar. People without credit cards find these loans a helpful option. As no credit check is needed, people having financial problems can easily get them.
What negatives are associated with them? Repaying a payday loan, the soonest possible, is crucial. People often find themselves in trouble with such loans when they can’t repay the debt quickly. If you fail to repay these loans when the terms end, expensive additional fees will have to be paid. You might find it too costly if you get stuck in payday cycle for long and might end up with even bigger financial problems. These loans tend to be expensive compared to other borrowing options. Mostly the APR on payday loans is around 400%. The APR for a normal credit card is 12% while that of a standard loan is almost 7%. In case you can use credit card, you go for this option instead of payday loan.
What are usury laws? Lending industry is regulated by specific laws in different states known as “usury laws”. They define the permissible rates and terms of lending. In some states the amount to be lent is also regulated by the law besides the charge they can take for loan. There are others where payday lending is absolutely banned, like New York. So, the laws differ widely. The lenders normally work around such laws as they partner with the banks from other states, like Delaware. It’s important that you read everything on offer of payday loan and know consumer rights exactly.
What to consider before applying? All available options should be considered before applying payday loan. It should be your option for emergency as these loans can serve one-time emergencies best but they shouldn’t be considered for fulfilling unnecessary expenses. Check if it’s possible for you to wait for car repair or bill payment till the next paycheck arrives. Keep in mind that £25 for late bill payment is still cheaper compared to £40 and the finance charge that you’ll have to pay for loan. Consider other borrowing options as well:
Payday loans’ alternatives
- Negotiate plan of payment with creditor
- Get advance pay from employer
- Charge the credit card
- Using overdraft protections from the bank
- Take out some money from savings account
- Get a traditional loan
- Lend some money from a relative
- Ask for some time from creditor for bill payment
In case you’ve done all the evaluation and want payday loan to rescue you in emergency, make sure that you know all costs as well as terms involved before applying.
- Look out for payday lender whom you can trust and who offers least fee and rates.
- Don’t borrow more than what you can easily payback on coming paycheck.
- As soon as you receive the paycheck, pay the loan immediately.
How to prepare yourself for handling financial emergencies?
Emergencies can’t always be predicted but one can stay prepared for them. Make sure you keep sufficient amount of money for covering your expenses of household for at least a couple of months. If not, at least one paycheck amount should be with you at all times. Keeping some credit cards to tackle unexpected issues can also be a good idea.