Payday loans are a lending setup where you can borrow money and repay it when you receive your next paycheck. It’s a short-term arrangement, often just giving you a few weeks to pay back the amount you borrowed.
While acquiring debt is never a good thing, there are times when you find yourself strapped for cash, like when your car suddenly breaks down and you need to have it repaired right away, or a loved one is rushed to the hospital. Payday loans can help you get out of that temporary financial rut by providing you with the resources to tide you through the situation.
Here are some benefits that payday loans can give you during personal emergencies:
- Instant Cash
The primary advantage of getting payday loans is that you can receive the cash right at the moment you need it. Traditional loans require a considerable amount of time for approval, from days up to weeks of waiting, whether your application is accepted or not.
The quick process of payday loans makes them a viable option for borrowers, especially during emergencies, since most crises are time-constrained. Generally, you can expect a response from the lender within minutes or hours of your application.
- Easy Access
The process of applying for a payday loan is relatively accessible to everyone as well. Most companies have mobile apps and websites where you can fill up a form and provide your details. These loan applications are, then, processed right away, and, as mentioned above, you’ll immediately know whether or not your request is approved.
Unlike traditional loans, you won’t have to meet with a loan officer and consult them on the amount that you’re most likely to get. Additionally, this type of loan allows you to choose the amount that you want to borrow.
Another convenience factor is that you get the amount in cash. You can either receive it personally with the lender or have it deposited right into your bank account. This is beneficial when you can’t pay using your credit card. This lending arrangement is relatively common, which means that you can get access to instant payday loans Canada or in any other country with ease.
- Less Rigid
Payday loan companies are also less stringent about the application requirements. Traditional lenders often ask borrowers to submit several documents so that they can assess the latter’s capability to pay back the debt with interest.
For instance, if you apply for a conventional mortgage, you’ll have to provide statements on your investments so that banks and other financial institutions can calculate your net worth. Based on that information, they can forecast how much you can pay back with your income and assets.
In contrast, these are the minimal requirements that you’ll need to comply with for a payday loan:
- Age – You must be at least 18 years old to qualify for a payday loan. Generally, university-aged individuals have official employment already, and they have a stable income.
- Valid ID – You’ll also need to submit a copy of a government-issued ID since this proves that you’re a legal citizen in your country. It should display your signature and Social Security number.
- Proof Of Income – As security for the lender, you must be able to show your proof of income. Some companies require that the borrower be employed for at least three months with a business, while others have a lesser minimum.
- Active Bank Account – You must have an active bank account as well because the lender will need a place to deposit the amount you borrow. Some moneylenders will require you to submit bank statements to get an idea of how much you earn in a month, which indicates your capability to repay the loan.
- No Collateral
Payday loans are considered as unsecured loans. This means that you won’t need to pawn the deed to your house or some other asset to borrow money. That’s why it’s a viable option during emergencies since you won’t have to worry about the lender having the right to seize your personal property if you default on repayment.
This type of loan may not require collateral, but, still, it entails a different form of risk because lenders have access to your bank account. Plus, they may turn over your debt to collections or the court, which can hurt your credit rating even more.
You should also be aware of the possibility of being charged with overdraft fees if the lender withdraws money from your bank account unexpectedly and you don’t have enough funds. This can affect your credit score and may even lead to legal problems.
- Doesn’t Affect Credit Rating
The target clients of payday loans are individuals who have a poor credit rating or don’t meet the minimum requirements for traditional loans. One of the best things about this debt arrangement is that failure to repay on time won’t affect your credit rating.
The short repayment period for payday loans can also be a boon for your credit score. Paying off a traditional loan in installments can take up to a year or two, and a lot of things can happen within that time. You may get sick or lose your income source and default on the payment, which can lead to the worsening of your credit record.
With the payday loan arrangement, you only need to repay the lender with your next salary, which reduces the risks involved. You just have to take note of your pending payment and make the necessary changes to your budget.
Tips To Make The Most Out Of Your Payday Loan
An excellent way to attain financial freedom is to stop creating more debt. However, there are instances when borrowing money is inevitable, as is the case with personal emergencies. As with everything related to your finances, you should be wise when looking for and applying with a payday loan lender.
Here are some tips to help you:
- Do Your Research And Compare Companies
Look for lenders in your area and compare their interest rates, as well as other fees that they may charge. Read up on reviews about these companies so that you’ll have an idea of their policies and customer service.
Even if you need the money badly, you shouldn’t settle for the first company you find. Take a few minutes to compare potential lenders to make sure that you’re getting a good deal, especially when it comes to interest rates and other additional fees.
You should also be aware of the other terms associated with payday loans, such as paycheck advances, cash advances, short-term loans, fast cash, bad credit loans, and deferred deposit transactions. This way, you can find more companies with similar financing arrangements and compare their rates.
- Calculate How Much You Can Borrow
Never borrow money that you won’t be able to repay using your next paycheck. The short repayment period may be beneficial in motivating you to pay off your debt quickly. However, you should also be practical in determining the amount that you can loan and think about the adjustments you’ll have to make in your budget. Don’t aim for becoming a one-day millionaire and end up starving for the rest of the two weeks or more.
- Determine Interest Rates And Additional Charges
The annual percentage rate (APR) of payday loans are determined by dividing the amount of interest you pay by the sum you borrowed and multiplying by 365. Divide the result by the length of the repayment period and multiply by 100.
For instance, if you get a 375 USD loan with a 56.25 USD interest or finance charge, the APR would be 391 percent. You start with 56.25 divided by 375, which is equal to 0.15. Then, multiply that figure by 365, and you end up with 54.75. Divide the number by 14 to get 3.91, and multiply by 100 to get the percentage.
The interest rate is the amount you have to pay on top of the amount you borrowed. It’s how banks and financial institutions earn an income from lending you their funds.
You must also be wary of hidden charges on top of the interest rate and principal amount. It’s another reason why you should read reviews about potential lenders so that you’ll find out if they have additional fees aside from what they’ve advertised.
- Know Your State’s Loan Laws
As much as possible, borrow only from lenders in your locality to avoid legal issues. You must do your research on your state’s loan laws as well. If you’re armed with this information, you can easily spot companies who are trying to take advantage of consumers.
- Read The Contract And Understand The Conditions
Once you’ve applied for a payday loan, you should go over the terms and conditions thoroughly to ensure that you’re getting a fair deal. If you have contact with a lawyer, ask them to check the fine print as well just to be on the safe side.
Conclusion
Payday loans are a viable option during times of emergencies because these give you access to instant cash. You also won’t have to worry about strict requirements and collateral. Moreover, this lending arrangement won’t also affect your credit rating. It does come with its own set of risks, so it’s best to do your research first before processing your loan application.