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Payday Loans – A Quick Overview
When you’re looking to borrow money it’s not always your best choice to finance for tens of thousands of dollars. Sometimes you might not think you’ll have a stable enough source of income to pay back the loan over a several year period, and sometimes you just might not need that much money. In a situation like this, payday loans can be a good option. The important thing is, of course, to make sure you’ll be able to return the money when it’s due.
A payday loan is basically a loan for a relatively small amount of money to be paid back over a short period. This kind of loan is also known as a payroll loan or cash advance loan. The loan repayment date doesn’t have to be linked with the borrowers payday, but the loan terms usually require a lump sum payment. The rates of this type of loans are usually much higher that those of long-term loans. For example – if you borrowed $100 via a payday loan, after four weeks you could be expected to pay up $110. This means that the APR of this loan would be around 120%. In another case, a $15 charge on a two-week $100 loan is around 300% APR. Luckily APR is calculated on an annual level and payday loans usually last over a much shorter time period.
APR of payday loans in most states is limited to around 40% by jurisdictions to prevent excessive rates of interest. Depending on your location, short-term loans may even be illegal. In The United States payday loans are prohibited in 14 states and the District of Columbia, while they are completely legal in 27 states and highly restricted in the remaining 9.
Applying for a loan is very simple. The lender will usually ask for a verification of income via bank statements and may tell you to write a check out for your next payday or request access to your electronic bank account for the purpose of cash withdrawal of the agreed sum. The advancement of technology has made it possible to request an electronic short-term loan. Applying for it online, faxing documentation and then having your cash directly deposited to your account is definitely convenient, but it leaves more room for fraud. Researching online and getting other peoples opinions on a money lender is vital when opting for an electronic short-term loan if you wish to minimize the risk of being tricked and ripped off.
There are, however, some trusted online payday-loan lenders that have been around for over 10 years. Some payday loans include recurring payments. Handing over your credit information or bank account can be dangerous if you don’t completely understand this type of payment. Recurring payments basically give the lending company rights to keep taking money from your account if you can’t afford it on time which can lead to pretty large fees and unexpected expenses. Canceling one of these recurring payments though, may be as simple as calling your bank and informing them of the situation, it shouldn’t take them more than a day to cancel any recurring payments being taken from your bank account. Sometimes, if you have relatives that have also taken payday loans, the money can be collected from their account if you lack the amount. It’s really important to be careful who you give your bank account and credit information.
Now, all you need to get a payday loan is a bank account and a relatively good credit score or even no credit whatsoever, as there are lenders that do not perform this check in order to give you a loan, and some lenders don’t even bother to check whether you’re able to pay them back. Identification is required, along with the declaration of a source of income, but usually a thorough credit check is never conducted. When borrowing money this way one should be careful not to fall into debt traps. This means allowing yourself to be forced forced to take up another ‘small’ loan to repay the first one, effectively increasing the amount of interest substantially and getting yourself in more debt. Over 60% of payday money borrowers got money from the same financier more than 6 times in a row. This can wreak havoc on your credit score and force you in to a never-ending cycle of credit-dependence.
Sometimes a credit card can be a great alternative to payday loans, especially if you stumble upon a credit card offer with 0% APR over a short period. The average short-term lender charges $25 for every $100 borrowed over a 28-day time period. Extended over a yearly period this would mean the APR is over 1,500%. An average credit card with 20% APR would charge you around $2 for the same amount/time period. Not paying your payday loan can quickly lead to you borrowing more money or extreme levels of interest.
The best time to apply for a Payday Loan is when you’re looking for a little extra funds between paychecks and are confident in your ability to return the money. Checking out multiple lenders is also a great idea, as it will definitely help you spot good deals and too-good-to-be-true deals. Keeping in mind that most of these loans are unsecured, usually the only thing that you end up losing is points on your FICO score. Still, reading the fine print and looking out for iffy deals are things you definitely want to do. Bringing a friend along when going to get a payday loan, possibly someone in the finance or law field, can also increase your chances of getting a great deal.
To find the best lender based on your particular needs, simply click on the Get Started button to your right or scroll up to select whether you want a no credit check loan or simply wish to apply for a loan suitable for bad credit.