What is a payday loan?
For individuals who are employed and have just one source of income, the task is always finding money from other sources in case something comes up. What happens when you have to pay for an emergency medical bill, your child’s school fees or maybe catch up on a mortgage payment. These are some emergencies which may hit you somewhere in the middle of the month before your next payday. This will prompt you to look for a fast alternative for extra cash.
Loans are your most viable way out of the financially difficult situation. However, most people have a negative view of loans. They think all loans are bad. In this article, we are going to explain more about payday loans which could work for you sometimes.
Definition of a payday loan
Payday loans are defined as short-term loans which are offered to an individual who should pay up by his next payday. Basically, this loan allows you to borrow money for a couple of weeks until you get your next paycheck and pay back the payday loan. Payday loans have been proven to be effective and helpful for some people in unexpected financial situations. Title Loans are sometimes confused as payday loans but actually in that case you are using your vehicle as an asset to get the loan.
Applying for a payday loan
Payday loans are easy to apply. With technological advancement, you could either apply for payday loans online or physically at the company.
Let’s first look at the application of a payday loan at the payday company. You fill out an application form at the payday company. You need to have a couple of documents prepared. You need an identification document to prove who you are, a proven source of income or proof of employment. In this case, you can just present your previous paychecks.
Applying for an online payday loan is not so different. However, there are two types of payday websites. There are online payday loan sites and lender matching sites. Online payday loan sites allow the borrower to directly deal with the lender. The lender matching website is different. This site uses the specifications you have put to link you as the borrower to the lender of your description. It is like a search engine for the borrowers, connecting you to the lender of your choice. Lender matching websites are created in such a way that the lender is able to get the borrower’s information to process your loan.
When the loan application is processed and the borrower’s personal and financial details verified, the borrower can get his loan. The money is either handed to him in a check or deposited into his bank account.
Repaying the loan
Getting the next paycheck for the borrower calls for the settling of the loan debt. Payday loans are to be repaid as one lump sum of cash and not in installments by your next payday. You have to clear your debt all at once. The payment is a total sum of the cash you have borrowed, plus interest. It may also consist of other types of fees.
Sometimes you could have a problem repaying the loan on time. This could prompt the lender to encash the check which the borrower issued him in the first place. By cashing that check, the lender gets his money back plus the interest, the fees charged and the penalty charged for not getting the payment in time. That is a large sum of money. It is just important to get another alternative that let the lender cash your cheque. This is where the option of rollover comes in.
This is the other option you have if you cannot repay the loan on time. Depending on the terms and conditions of your loan contract, the rollover option comes with a couple of terms tied to it. This option allows you to get more time, typically another 30 days to pay up the loan. However, there is a catch. The lender will review all your contact and will probably increase the interest rate. You also have to pay processing fees for this option and the penalty for rolling over.
This option could prove to be utterly dreadful if you’re not careful. You could be paying more than you actually bargained for and be thrown into more financial trouble. You may eventually end up getting into way more debt with the rollover option. It is always important to weigh all your option.
Payday loans are actually one of the most expensive loans out there. When you look at the payday loan’s annual percentage rate, you will realize that their annual percentage rate fall between 300%-400%. This is among the highest in the markets. However, a payday loan is a short-term unsecured loan. High-interest rates make perfect sense. The loan is not supposed to last for more than a month and the loan amount is small. This is why their interest rates are extremely high.
Credit information has little or actually no use in payday loans. We are talking about payday loans with no credit checks. This is because the security of the loan is spread to the high- interest rates and postdated check. This is the most attractive aspect of this loan. It is accessible to many and all sorts of people out there. You can actually get a loan with bad credit, unlike the other loans like the traditional loan.
While we are at the credit issue, it is important to note that the failure to repay any debt you have could lead to a bad credit score. The situation is worsened if you fall into the payday cycle where you keep rolling overpayments. It is important to keep track on the repayment of a loan before you fall into deeper financial trouble and end up with a poor credit score.
Payday loan and collateral
A payday loan does not need collateral. Collateral has always proven to be a problem for a lot of borrowers. The worry of losing your item or property for failing to pay a loan; a double loss is just unbearable for anyone. This is actually one of the reasons that discourage a lot of people from taking up a loan. However, collateral is not an issue when it comes to payday loans. Payday loans don’t require any form of collateral.
A payday loan does not need collateral for one reason – the security of the loan is already guaranteed by the postdated check and the high-interest rates. Not requiring collateral attract many people to take out a payday loan.