Payday Loan 101: What Beginners Should Know – What is a Payday Loan?
Applying for a payday loan is like jumping into a bottomless quicksand – there’s a chance that you may never get out. Even if payday loans have improved since the last decade, their volatility is still imminent and borrowers are still paying outrageous fees. Of course, you have the option to stay away from payday loans – there are other types of loans anyway. But what if you really need money in the same day? What if you encountered a distressing financial situation? In this case, the payday loan can bail you out.
Before you head straight towards the nearby payday lending office, you need to understand some helpful points. Borrowing a payday loan is not a joke, so you have to be prepared.
And what is a payday loan really?
Payday Lenders Don’t Have Strict Credit Checks
Unlike other commercial lenders, payday lenders don’t follow a strict credit check system. Rather, they will assess your loan on two main parameters: employment status and character. If you’re employed and doesn’t have any problem with the law, there’s a big chance that your loan application will be approved. It also works best if you’re referred by a friend or relative.
You Can Get Your Loan Within Minutes
The real problem with commercial loans is the lengthy processing period. It typically takes more than a day before your application is approved or denied. If you even applied for a bigger loan, the situation is more pressing. Business loan borrowers, for example, need to present their business plans and methodologies to the lender. If the plan is favoured by the lender, the loan can be released in few days. With payday loans, you can get your money in just minutes. This is especially true with online cash advance lenders. After you got the approval, the lender will send your money to your bank account.
Typical Payday Loans Have High Interest
Since a payday loan can be received easily, it’s probably a loan ‘made in heaven.’ Not quite, though. The first disadvantage of payday loan is the high interest. Regular-paying borrowers usually end up paying more than 150% of their principal. The rates can even go up if the economy is unstable and the payday lender needs to adjust the stakes. High interest is normal in the payday lending industry. If you can’t bite it, choose another debt instrument.
Miss One Term and You May Have Trouble
What if you’re locked in with a payday loan and you suddenly cannot repay? Well, aside from the interest, you need to pay penalties. The penalties of lenders vary, but they can range from 10-50% of the principal. Some lenders will even charge larger penalties to churn out more profits in few months. Once you missed a term, you’re trapped. The only sensible choice is to fully repay the loan in the next term.
Payday Loans are Unsecured
Payday loans, no matter how beautifully they’re presented, are unsecured. Unsecured loans are called that way because the lenders don’t issue collaterals – there’s no definite way to get their money if ever you fail to repay. Instead of a collateral system, the payday lender will just send persistent collection agents after you. The lender will also pursue all legal processes to get the amount you owe. Unsecured payday loans are also subjected to frequent changes in rate, even though the lender didn’t issue a major announcement.
Some Representative APR Examples are Inaccurate
Whenever you visit a payday loan website, you’ll see the current APR and the amounts that the lender can offer. Additionally, you’ll also see a representative example of how the rates will add up throughout the duration of the loan. Not all representative examples are accurate. Some are just approximations of the loan interest and other related fees. Since the lender can change the rates freely, the representative example can yield different results from time to time.
Predatory Lending is Still Happening
The old days of predatory lending are now limited, but still existent. Now, predatory lenders are more than capable of getting more money from borrowers. They can do this while under the nose of the law since there are loopholes that they’ve exploited. To minimise the risk encountering a predator lender, you should spend time in checking reviews. Don’t jump into the payday loan bandwagon right away. Research about the top lenders in town and understand their rates. Only then you can proceed without getting worried about predator lenders.
Payday Loans are Good for the Economy
You’re probably wondering if payday loans are really helpful or not. This is a situation of perspective; a payday loan can be helpful if it’s not exploited. Think of the payday loan as the last card that you must play when all other solutions have failed. In a grander scale, payday loans can empower the economy. With more payday loans offered, people will have better buying options. This will drive all businesses forward at the expense of high interest and some uncontrollable fees.
Have you understood all of these points? If yes, then you’re ready to apply for your first cash advance loan. Whatever happens, don’t forget to reply accordingly!