Payday loans are the type of loans that are granted for a short period. These loans are determined by the check of the lender or the bank account of a person who is borrowing the loan. However, the account must be approachable electronically.
A check is written by the borrower and cash is collected along with the funding fee. Sometimes, the debt collectors access the bank account of the borrowers to collect the money automatically. This type of loan is best for people who need urgent money.
This process is so simple and fast and that’s why people tend to opt for this. Within minutes, people can get their money after process completion. The lenders keep a check on your account information and wages. This is necessary to identify the payout amount.
Payday loans are sometimes not as easy as they are thought to be. They can cost you more. So it is important to be well educated before you go for a loan application. These loans are an easy thing if you have a job.
The companies that provide payday loan facilities are usually structured to keep the process as simple as possible to prevent borrowers from any inconvenience. Borrowers can simply return the loans before their next paycheck. That is why these loans are termed payday loans, cash advance loans, deferred deposit loans, post-dated check loans, or check advance loans
Requirements to get a payday loan
For a loan application, the following requirements need to be fulfilled by the borrowers. These requirements are defined according to Government’s Consumer Financial Protection Bureau (CFPB)
- Borrower’s age should be 18 or more
- Borrower’s account should be active and accessible
- The borrower must provide valid proof of job and earnings
After checking all the requirements, the application process is authorized in 15-20 minutes. In most cases, the borrower shall write a loan check plus a loan fee and the loaner shall stay on the check until the time limit has been fixed.
Most loans can be extended for a couple of weeks. The creditor either pays the interest before the loan is due or lets the creditors cash out the post-dated cheque or otherwise erase the debtor’s account.
How does the payday lending system work?
Payday loans are quite different from other types of personal and consumer loans. Various online sites and lenders like Payday LV provide you with this facility. Role, requirements, and loan depend upon the area you reside in.
This is because rules vary according to the country. Some countries ban payday loans completely while others Limit the amount that you can borrow or the amount the lender can owe or interest
After receiving approval, you can collect the cash directly, through a cheque or bank deposit. Before the due date, which is usually 2 weeks or the next date of payment, you will have to repay the loan completely.
Depending upon the amount of loan, a specific loan charge is issued. Due to the short maturity periods of payday loans, these rates are a steep annual percentage rate (APR). Payday loan APRs typically amount to 400% or more, according to the Consumer Federation of America.
As per the Economist prediction, 2.5 million households in the US applied for payday loans in the past year. Despite high prices, the popularity of payday loans can be explained due to various reasons. One is the lack of funding options that force people to use payday loans.
Secondly, they may not have assets and earnings for their emergency crisis, making them apply for payday loans. Another reason is that people may not know the alternatives to payday loans. Fear may also be an option because many people find it uncomfortable to ask for money from their friends and families. Here, payday loans serve the purpose.
Payday lenders have no consent criteria. In most cases, the creditor does not do a credit search or even needs the means to reimburse the loan. You need identification, a reasonably good standing bank account, and a constant paycheck.
Repaying the payday loan
Payday loans are ought to be repaid before the next due date. Please check the date or seek a specific due date of the deal, given the various maturity conditions for the lenders.
Following are the ways to pay back payday loans:
- A check payment postdate
- Pay on lender’s website online
- Direct debit from the bank account
- Any other credit type
In case of not returning the loan, the company will automatically take money from your account.
Unfortunately, loans can not ever be repaid before the due date by paying creditors. In reality, 20% of payrollers could not pay for their loans and more than 80% of the payday loans lent were repaid or reimbursed in 30 days.
Payday loan and associated risk
In an emergency, the urgent financing need is overcome by the payment loan. But because these debts usually have a high level of APR, if you can’t pay them on time, you may get caught in a violent debt trap.
Payday loan borrowers get trapped several times in a constant circle. The foremost problem is that borrowers usually need to borrow some more money to remove the first loan. Since daily income is wasted by everyday charges, they are not better off in two weeks.
Payday loan alternatives
Following may be the alternatives to a payday loan:
- Make sure to save some emergency cash in your bank account.
- Your emergency credit card must be free.
- Get a loan from the bank or go for an unsecured loan.
- Take part-time work with additional money.
- Ask for changes in the policy of loan and payment with lenders.