Payday loans: What you need to know and what to avoid
If you are in serious financial trouble or you cannot afford your next paycheck, a payday loan might be an option. Short-term cash loans are available based on your next payday. This means you borrow from your future income, not from any third-party funding source.
Payday loans should not be considered risky. Payday loans can have up to 400% interest rate per year. It may prove difficult to repay the loan if you are already living paycheck-to-paycheck. This is especially true if you have a lower income than before the loan was taken. If you’re among the 40% who can’t afford unexpected $400 expenses, a payday loan might be your only option right here on paydaynow.
Other financial services might interest you as well
General lenders that sell financial services can either offer payday loans or they can help you. These loans can be obtained in either brick-and-mortar stores or online. Most payday lenders will only approve borrowers if they meet these requirements.
- Keep a checking account active
- Please provide proof of income
- Provide valid identification
- Minimum 18 years of age
Credit check not required
Payday lenders don’t usually run credit checks on borrowers. Payday lenders won’t ask questions to determine if borrowers can repay the loan. Lender’s ability to repay and your ability pay back are the requirements for loans.
Payday loans are expensive and you need to repay them quickly.
Let’s take an example: A $400 payday advance with two-week terms. For every $100 borrowed, a $15 fee is common. This means that in two weeks you will have paid back $400 plus a $60 fee. It may be difficult depending on your financial situation. The Consumer Financial Protection Bureau (CFPB) states that payday lenders may encourage you to pay the fee only in states that do not restrict loan renewals or rollovers. If the state doesn’t ban them, they may offer you two more weeks of loan extension. Payday lenders will charge $60 if you accept the offer, or feel that you have to, and you’ll still owe $460 after the extension ends. You would need to pay $120 for $400.
Other loan options
The CFPB advises against taking out a payday loan. The CFPB recommends that you thoroughly consider all options and exhaust them all.
- Re-negotiate your loan terms with your current lenderIf you are in serious debt, talk to your creditors. Many lenders will work with you to make your monthly payments more affordable. This can help you generate extra income each month.
- Ask your employer to increase your salarySimilar to a payday loan, you can borrow money against your own funds but with no interest or risk. Although your employer may decline to approve your request, you might consider whether or not you could pay excessive fees and interest to a payday lender.
- Ask a relative or friend to lend you the money:It can be difficult to talk about this with your loved ones, but it is worth it to avoid excessive interest on payday loans.
Before you apply for a payday loan, be sure you are fully aware of the risks. Ask your lender questions and make sure you understand the terms. To make it easier for you to repay your loan, you can create a repayment plan. This will prevent you from becoming overwhelmed by additional costs. It will be easier to repay the loan, and the effect of high interest rates, if you know what to do.