At some point, nearly everyone has had a situation come up that required a little more cash than they had on hand.
Whether it’s the heater that goes out in the middle of winter or junior jumping off the swingset and breaking an arm – sometimes, we all need a little extra money before payday.
And that’s where a payday loan can really come in handy. Let’s check out your options.
What is a Payday Loan?
Payday loans have been given a bad reputation, but for people with poor credit or who need cash quickly, they can be an easy way to bridge the gap between pay periods for emergency situations.
A small amount, generally between $500 and $1,000, is extended by a payday lender to the consumer.
The length of the loan is generally until the consumer’s next paycheck, or 1 – 2 weeks.
Rates vary from lender to lender, although many states and provinces have a cap set on the amount that can be charged – typically $15 for every $100 borrowed.
The loan is backed up by a post-dated personal check or EFT authorization that allows the lender to debit the borrower’s account in the event they don’t pay the funds back in time.
Cash is generally available the same or next day, and many lenders even allow you to borrow money online.
The “bad reputation” given to payday loans, however, are generally done so by those who are cannot operate within the parameters agreement.
For those who can, payday loans can be a life-saver, a light in a dark place.
What are the Benefits of Payday Loans?
Payday loans have one huge benefit over traditional loans – they’re quick and easy.
Bank loans have lower interest rates, but that rate comes at a huge price in terms of access. Banks require a lengthy application process and credit checks. For those with poor credit or who need cash in a short time frame, this process may not be ideal.
Credit card applications are quicker, although most still run your credit score before approval. The rate is much higher than a bank loan.
Additionally, being approved for a credit card doesn’t mean you have immediate access to those funds. Generally, there is a waiting period involved.
Credit cards also have a hidden risk. While a payday loan is a capped amount, credit cards are an open line of credit that makes it easy to overextend.
Even if your credit card is limited, as you continue to make payments, the credit card company will continually seduce you with higher and higher limits. Unfortunately, the more you raise your limit, traditionally, the more you’ll spend and the higher your interest payment will be.
Credit cards can take decades to pay off, and that’s how they make money.
Payday loans don’t require paperwork or credit checks. The only thing you’ll need is proof that you’re over 18 years old, an active phone number, a valid and active checking account, and proof of income, such as paychecks or bank statements.
Certain companies even allow you to borrow money online!
What do you Need to Know About Payday Loans
Now, everything in this world has a cost. Personal loans, car loans, credit cards, and yes, even payday loans.
While they are incredibly easy to obtain and have reasonable contracts, payday loans do come with some risks.
However, it’s important to note that the borrower’s responsibility and accountability are directly related to the amount and probability of risk assumed in taking out a payday loan.
Depending on your options, here are some common risks:
- Falling deeper in debt – Taking out a loan when you are already buried by debt and other loans is only exacerbating your situation. While a short-term fix, payday loans could lead to more debt.
- Higher interest rates – Because payday loan companies take great risks offering loans with little or no accreditation, their interest rates are often much higher. However, payday loans are meant to be paid off within a month or so, so the interest rates aren’t designed for long-term sustainability.
- Falling behind on other bills and financial responsibilities – Taking out a payday loan means agreeing to pay it back ASAP. However, doing so make pull money from other areas, such as cell phone bills, mortgage/rent, etc.
Remember, if your options allow you to take out a payday loan safely, then do so. Otherwise, assume the risks with full knowledge of doing so.
Payday loans don’t need to have a bad reputation, they exist to help those in times of need.
What are Your Options for Payday Loans?
Payday loan options come in a wide variety of options depending on the lender.
- State Regulated Lenders
- Credit Access Business
- Offshore Lenders
- Direct Lenders
State-regulated lenders are bound by laws and regulations of each state. These laws help protect borrowers from exorbitant fees and interest rates.
Credit access businesses are also regulated by the state but are a go-between for you and a lender. They assist you in obtaining a loan from a third-party lender but your payments are made to them.
Offshore lenders aren’t regulated by the state. This allows them to offer more money, but have unregulated fees and hidden costs.
Direct lenders are companies that service your application and provide you with the loan.
Who Are Payday Loans For?
You should consider a payday loan as one of your options if you have unexpected expenses come up, need quick cash for a small expenditure, or live paycheck to paycheck and are a little behind.
Payday loans are also great for those who haven’t developed enough credit or have poor credit, as well as those who have had credit setbacks, such as a missed mortgage payment or bill.
Get Your Payday Loan
If you need cash fast and are considering your options, skip the credit cards, the bank loans, and the embarrassing experience of asking your parents for money.
Look for an online payday loan to get you by until your next check. You’ll have some interest, but without the decade-long payments that come along with other options.
Check out the rest of our site, including our financial section.