What You Should Know About Payday Loans
A payday loan is generally a small, short-term loan for those who are unable to meet their credit obligations as they fall due.
As a consumer, you may come across payday loans when you are looking for quick cash. These loans have been around for years and have provided millions of Americans with access to funds they might not otherwise have had. The terms âpaydayâ, âshort termâ and âhigh cost creditâ, which are used in connection with payday loans, can be confusing.
The payday loan industry is an $ 80 billion per year business in the United States. The basic principle of these companies is to allow people who need small amounts of money to pay very high interest rates (usually 10% per month).
SFGate is one of the financial brands that can help you with payday loans. However, before you get an online payday loan from SFGate, here is what you need to know about payday loans:
What is a payday loan?
A payday loan is generally a small, short-term loan for those who are unable to meet their credit obligations as they fall due. Instead of borrowing money from a bank or other lender with fixed terms and rates, payday lenders provide small loans that are only secured by the borrower’s next paycheck.
Clients repay the principal amount of their loans as well as finance charges, usually within two weeks. So why would anyone willingly take this type of loan? It seems counterintuitive. The simple fact is, 76% of borrowers whose loans are due in two weeks are unable to repay the entire balance at that time. For many, payday loans are just a way to keep them going until their next paycheck arrives.
Many borrowers use payday loans to pay for needed items, such as groceries or utilities. Research shows that payday borrowers are less likely to use their loans for needed items than other types of loans. Payday loan borrowers use this option because they cannot get credit elsewhere. They often provide easy access to funds for borrowers who cannot qualify for conventional bank loans.
Apply for payday loans
Payday lenders typically provide short-term loans to borrowers who are unable to obtain credit elsewhere. Loans are generally for small amounts of money, often less than $ 1,000. You can easily apply electronically with just the click of a mouse.
The borrower writes a personal check for the full loan amount and charges to the lender. Loans are often available for a few weeks to a few months. However, some lenders offer “longer term” installment loans of several months to several years.
The typical payday loan has very high interest rates or even an annual percentage rate (APR). It ranges from 300% to 1000%. Lenders say it is a form of “credit insurance” and lenders justify the high interest rates by saying that borrowing to pay bills, like rent or car repairs, can be needed in the event of a problem.
Important facts to note!
The following points are true for payday loans:
- Applying for payday loan is much simpler than that of other loans. The approval process takes much less time. More importantly, no paperwork is required for the application process, as is the case with bank loans. Some lenders will not even consider the borrower’s credit rating as a prerequisite for granting the loan.
- Borrowers typically pay off payday loans when they receive their next paycheck. Interest rates on loans like these can range from around $ 10 to $ 30 for every $ 100 borrowed, and most borrowers pay between $ 15 and $ 20 in fees for every $ 100 borrowed.
- The industry primarily consists of under-regulated companies that operate across state borders. This gives them access to millions of unsuspecting consumers who have little choice but to take advantage of these high cost loans. These lending practices often trap borrowers in a cycle of indebtedness.
- Take payday loans if you really need to and if it is needed. Instead, look for options. Otherwise, do not apply for such loans for luxurious expenses!
When you are considering the option of payday loans, you need to determine the amount for which you are eligible. In most cases, there is currently no limit on the amount or frequency that payday lenders can lend to an individual borrower. However, some places limit the number of payday loans that an individual can take out.
Disclaimer: No Asian Age reporter was involved in the creation of this content. The group also declines all responsibility for this content.