Storefronts and websites for payday loans appear popular. Despite the prevalence of these lending houses, many people remain confused over what these “cash advances” are. Basically, a payday loan is a form of short-term lending for limited amounts of money. A lender may offer a loan for as little as $100 to a maximum of $1,000. Other lenders might provide less or more, but there is one common thread among all lenders: the loan becomes secured by an upcoming paycheck.
Loans for Emergencies and Shortfalls
People run short of money at times. Unexpected expenses can drain funds quickly. For someone living from paycheck to paycheck, covering unavoidable medical bills, car repairs, travel expenses, and more can be impossible without credit. The person, however, might not have access to a credit card, or his/her accounts might be maxed out. Others can’t receive approvals for traditional personal loans due to bad credit. Payday loans become the only available option for them. A payday lender becomes more likely to approve a loan since the applicant’s next paycheck covers the loan. Approvals, however, are granted on a case-by-case basis. The requirements for approval, in general, are not too strict.
Repayment Terms on the Loan
Payday loans come with relatively high interest rates. Often, there are additional fees involved, as well. Paying the loan back as quickly as possible reduces interest charges. The duration to pay back the loan may be within one or two weeks. Extensions might be possible, depending on the lender. Those interested in slightly longer loan terms can look at lenders offering 30 to 45-day terms. Even lengthier installment loans may be available.
Once again, the Annual Percentage Rate (APR) on a payday loan is much higher than a typical credit card or personal loan. Paying the loan back as fast as possible becomes necessary to save on interest costs. Be aware that the costs associated with payday loans could be less expensive than overdraft fees, and the interest drawn from continually carrying credit card balances month-to-month.
Failure to repay the payday loan usually leads to collection action. The lender may try to deal with the borrower directly at first. If the lender finds the borrower doesn’t pay, the debt could get a referral to a collection service. Collection actions typically go hand-in-hand with negative reports to the credit bureaus.
Qualifying for the Loan
Once again, each lender has its policies regarding application approvals. Maintaining a checking account stands as the likely most common requirement among online lenders. After all, the lender must deposit the funds somewhere. Of course, someone applying for a payday loan must have a job. Sometimes, the lender requires the applicant to prove a minimum number of weeks employed at the workplace. Other requirements include being at least 18 years of age and a United States resident.
Fears of being turned down due to bad credit weigh on many applicants’ minds. There might not be any reason to worry.
A significant number of lenders are willing to approve someone with bad credit. There is a misconception that the lender will not perform a credit check. A lending institution could perform a hard or soft credit check, with the soft credit check not affecting a credit score. That said, the individual lenders have their policies and could report the loan transaction, payment history, and more to the three credit rating bureaus.
Generally, someone with bad credit should be able to locate a payday lender willing to approve his/her loan. A large number of payday loan applicants have troubled credit histories, so financing companies realize they will be dealing with applicants suffering poor credit. Many lenders publicize a policy that they accept “bad credit borrowers” as a way of drawing in their business.
Completing the Application
Applicants must be careful when filling out a payday loan application. Typos or other errors could lead to a denial. The applications aren’t usually complicated, and completing one might take only a few minutes. A lender could require an applicant to submit additional information via fax, while another one won’t. Again, policies vary from one financing office to another.
Applying online involves clicking the appropriate button. The application then goes to the lender for a review. A decision could occur within minutes. If approved, the time to deposit the funds into a checking account varies. One to two business days is common.
Working with a Third-Party
Finding the best payday lender with the best terms and a desire to approve an application can be tough. Third-party services exist to handle these tasks on behalf of applicants. The services work with a network of payday lenders. The applicant applies with the service, and the service forwards the information to a suitable lender.
Overall, payday loans follow a straightforward process: someone borrows against future earnings. The simplicity of payday loans makes them preferable short-term borrowing options for many.