You may have contemplated a payday loan if you’ve ever been short on cash and far from your next paycheck. These short-term cash loans are predicated on the revenues from your next paycheck. That is, rather than borrowing money from a third party, you are borrowing money from your future profits.
Payday loans might be risky for people who are in need. They offer extremely high annual interest rates of up to 400 percent. Repaying the debt while still covering your monthly expenses might be challenging if you were already living paycheck to paycheck, especially if your income was cut by the amount you borrowed. A payday loan may be your only choice if you’re one of the 40% of Americans who can’t afford a $400 unexpected cost.
Payday loans can be obtained from specialized payday lenders or from more general lenders that also offer other financial services. They are available in physical locations as well as on the internet. To be approved for a loan, most payday lenders ask that the applicant satisfy the following criteria, or visit web site for a complete list of conditions.
- You need to have a checking account that is active.
- Provide the proof of the income
- Please provide proper identification.
- You must be at minimum 18 years old
Payday lenders seldom run a credit check or even ask questions to see whether you’ll be able to return the loan. They’re based on the lender’s capacity to collect rather than your ability to pay. As a result, people usually appear to be caught in a debt trap that is virtually impossible to escape.
Because payday loans have such high-interest rates, it’s critical to make sure you pay back the loan in a timely manner.
Consider a $400 payday loan with a two-week repayment schedule that appears to be typical. The average cost is $15 for every $100 borrowed. In just two weeks, you’ll have to repay the $400 borrowed plus a $60 fee. Depending on your financial situation, this may be tough to attain. This is the case in regions where loan renewal or rollover is neither limited nor prohibited, according to the Consumer Financial Protection Bureau (CFPB). A payday lender could persuade you to pay just the fee and then extend the loan for another two weeks. If you accept the offer because you feel bound to do so, you will be forced to pay $60 and will remain liable.
The CFPB suggests against getting a payday loan and suggests taking time to thoroughly evaluate and explore all alternatives:
- Re-negotiate your loan terms with your present lenders: If you have a large amount of debt from a credit card, school loans, or any other source, you should call your creditors and explain your situation. Many lenders will work with you to set up an installment plan for your monthly payments, allowing you to free up money that you need every month.
- Request your employer to give you an advance: It works on the same principle as a payday loan in that you borrow money from yourself, but without the risk of paying a higher interest rate. The request may be denied by the company, but it’s worth a shot if you won’t be paying high fees and interest from payday lenders.
- Request your family or friend to lend you cash: Asking a loved one for assistance might be a tough conversation to have however it’s worth it if you’re in a position to avoid the high rate of interest associated with payday loans.
You should be informed of the hazards before applying for a payday loan. Ask a lot of questions of your lender and make sure you understand everything. Make a repayment plan that will allow you to repay the loan on time while avoiding becoming overwhelmed by the extra fees. If you are aware of the risks and what you must do to prevent them, you will be able to pay off the loan sooner and reduce the burden of high interest rates and penalties.