It happens to everyone. Well, almost everyone.
You work hard, but somehow you come up short. Welcome to America, where the average person most likely has up to $38,000 in debt.
If you have credit card debt, student loans, a car loan, a mortgage, or a combination of these, chances are that you’re spread pretty thin. And with predatory interest rates eating away at your soul, it’s not totally your fault.
So what do you do when your paycheck doesn’t cover your most basic needs, like rent? What do you do if you only need a few hundred bucks for bills or groceries?
Well, one option is to get a payday loan.
What is a Payday Loan and How Do They Work?
In essence, a payday loan is a short-term loan.
payday loans are also referred to as same day loans because they’re designed for people who need cash in a hurry. They have a common limit of $500, but can sometimes be set above that amount.
A payday loan is typically repaid on the borrower’s next payday all at once. The due date can range from 2-4 weeks, beginning with the date that the borrower takes out the loan. The individual payday loan agreement will determine the specifics, so the details may vary.
To repay the loan, the borrower has to write the lender a post-dated check in the amount that they wish to borrow. In addition, the borrower will have to include any lender’s fees in the check. You can also give the lender the authorization to debit funds from your account electronically.
In some cases, the lender may allow you to make payments towards your loan. In other cases, you may be able to extend your due date and pay only the fees on the original due date. This loan feature can vary by lender or by state.
How to Get a Payday Loan
There are three ways to get a payday loan: from a bank, a payday loan store or online.
If you’re wondering about whether you need a high credit score to get one, the answer is no. Lenders for payday loans don’t care if you have great credit or terrible credit. However, they do have other requirements.
To get your hands on a payday loan you must:
- Meet the minimum age requirement in your state (usually 18 or older)
- Have an open and active checking account
- Have proof of income
- Have a valid phone number
Although there are few requirements to get a payday loan, there are reasons that a lender could deny you.
Those reasons are as follows:
- You don’t make enough money. (Your net income should be at least $500)
- You don’t meet the repayment requirements. (Each lender has its own algorithm to gauge your ability to repay)
- You already have an outstanding loan
- You’re on active duty. (Federal law prohibits lenders from making short-term loans with high interest to military members)
- You’ve recently filed for bankruptcy
- You’ve recently had checks bounce
- You do not have a long employment history
- Your bank account isn’t old enough
Of course, lenders may find ways around these restrictions and laws.
What is the Fastest Way to Get a Payday Loan?
Getting a payday loan takes as long as finding the right lender, visiting the store, bank or website, and filling out the application. The application process generally takes from 5-15 minutes and your money gets deposited in only a few business days. (Or you will receive cash upon approval).
Finding payday loans online is often faster and more convenient than going to a bank or store. Not only do you get to save on transportation costs, but you can search a number of lenders to compare and contrast.
You’ll have a faster turn around time with online Payday loans because the application and approval process is much quicker. You’ll often receive your money within one business day.
How Much do Payday Loans Cost?
The actual cost of payday loans depends on the lender’s fees as well as the amount that you borrow. The fees vary from lender to lender, and there’s a significant difference in the costs between store lenders and online lenders.
According to the federal Consumer Financial Protection Bureau, storefront payday lenders typically charge $15 per $100 borrowed. For a minimal two-week loan that’s up to 391% interest.
Lenders online charge higher rates and tend to have an exemption from state rate caps. This means they can charge as much interest as they want. According to the CFPB, the average online payday loan interest rate is 613%. That’s approximately $23.53 per $100 borrowed.
If your loan isn’t repaid in full on its due date, you’ll have new finance charges added. This happens each time you don’t pay your loan in full. With the interest that builds, you can end up paying almost triple the initial loan amount.
This is what makes payday loans a risk. On average, borrowers end up paying about $520 in fees for loans as small as $372.
Will a Payday Loan Affect My Credit Score?
Payday loans are available to borrowers with all types of credit. Approval odds for borrowers with bad credit are as good as those who have good credit. Payday lenders don’t report your payment history to the credit bureau. Taking out a payday loan won’t hurt your credit score, but it also won’t help your credit score.
So, if you’re looking to build your credit, don’t count on a payday loan for a boost.
You Have Options
A payday loan is not your only solution. If you know you won’t be able to pay your loan in full on its due date, you should explore your other options first. Even if you have bad credit, same day loans should be your last ditch effort.
If you feel like reading more about lifestyle, culture, tech news, gaming and the like, you should explore our page. We’re the leading source in geek culture around the world.