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PAYDAY LOANS: WHAT THEY ARE AND HOW YOU CAN GET ONE
When you’re strapped for cash, it can feel like you have limited options. You can borrow money from friends and family, you can see if you can get a quick bank loan to tide you over.
There are also payday loans. Payday loans are fast and convenient loans that more people are turning to get some cash in a hurry. About 12 million Americans take out payday loans each year.
If you’re not familiar with payday loans you’ve come to the right place. Read on to find out what a payday loan is and how you can go about getting one.
What Are Payday Loans?
What is a payday loan? It’s a small loan that you can get to cover emergency expenses or to tide you over until your next paycheck.
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BONSAI FINANCE
Our take:Online marketplace to find you a personal loan offer that matches your needsAPPLY NOWCredit ScoreLoan Size/AmountLoan TermAPROrigination FeeAll can apply$100 – $15,0001 – 605.99% – 35.99%Varies by lender
Millions of Americans are going paycheck to paycheck and if something comes up, there’s often not enough money to cover things like food and shelter.
A payday loan can give you a quick shot of cash so you can take care of your basics and then pay it back when you get your next paycheck.
The terms of the loan are typically short – anywhere between 7-30 days. The terms will depend on when you get your next paycheck and the lender. Some lenders will allow for 14 days, while others want the funds repaid in 7.
What happens if you get paid and you don’t have the funds available to pay back the loan? That’s the thing. You have to pay it back when it’s due. Otherwise, you could just be paying a lot more in fees to roll that loan over into a new one.
Pay Day Loan Interest Rates
Before you sign up for a payday loan, there is something that you need to know. Payday loans are often associated with high fees and interest rates, with borrowers paying about $9 billion a year in interest and fees.
As convenient as they are, payday loans are often a buyer beware type of product. As much as you need the cash, you still have to do your homework to make sure that you can afford to pay back the loan.
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BONSAI FINANCE
Our take:Online marketplace to find you a personal loan offer that matches your needsAPPLY NOWCredit ScoreLoan Size/AmountLoan TermAPROrigination FeeAll can apply$100 – $15,0001 – 605.99% – 35.99%Varies by lender
Here’s how interest works with a payday loan. When you sign up for a loan, you’re agreeing to pay back the loan, plus the fees within the timeframe given.
When you’re looking over the contract, it seems pretty reasonable at first. You take out a loan for $400 and pay fees which range between $10 – $25 for each $100 you borrow. In this instance, the total cost of your loan is between $440 and $500.
What you’re missing out on is the APR. That’s the annual percentage rate of interest for your payday loan. When you calculate that number, you’ll be surprised to see that it’s as high as 500% or more.
To put things into perspective, the average credit card interest rate is close to 17%. Personal loans tend to have a lower interest rate, though that depends on a number of factors, including your credit score.
The lesson for you here is that payday loans can be a useful financial tool as long as you’re aware of the fees and your ability to pay back the loan. You really have to take responsibility for the loan.
How to get a Payday Loan
The first step in getting a payday loan is to make sure this is the type of loan you want and need for fast cash. There are alternative methods of financial resources when you’re in a bind, like credit cards and personal loans.
If you feel that payday loans are your best option in the moment, you’ll have a few things to do before you sign up for a payday loan.
Look at Your Finances
The first step is to figure out your financial situation. How much money do you really need? How quickly can you pay it back? If you need $300, are you prepared to pay back as much as $375 and still keep your lights on?
These are all questions that you have to consider before you sign up for a payday loan. You want to be absolutely certain that you’ll be able to use the funds for a specific purpose, like to cover an emergency. You then have to make sure that you can pay the full amount plus fees in as quickly as a week.
How to Find a Reputable Payday Loan Lender
Unfortunately, there are a lot of payday loan lenders who are considered to be “predatory lenders.”
These lenders knowingly give out loans to people who can’t afford to pay them back and keep them in a cycle of debt for years. In the meantime, they make a ton of money off of high interest rates.
These predatory lenders give the entire industry a bad name. That’s why you see the payday loans industry heavily regulated in many states. These laws and regulations are in place to protect consumers from these types of lenders.
You need to make sure that you avoid these lenders at all costs. How can you make sure that you are working with a reputable lender? Here are a few guidelines to follow.
Read Reviews
You can’t go with the first payday lender you see online or the one that’s closest to your home. You have a lot of choices when it comes to payday loans.
You want to look closely at the reviews of payday lenders. You’ll want to look at their customer service, their rates, and how quickly they will deliver funds.
Know the Regulations in Your State
Payday loans are heavily regulated. The laws and regulations will vary from state to state. Some states have no regulations when it comes to payday loans, while others put a cap on how much you can borrow and the interest rate.
The more you know about regulations, the more you can protect yourself from less than reputable lenders who operate outside of the law.
How Many Years Has the Store Been in Existence?
You want to make sure that the payday lender you go with isn’t a fly by night company. There are some that have been around for 20 years or more. The more experience they have, the less likely they are to have a good reputation.
After all, a business can’t operate for long with a horrible reputation.
You also want to check to see how many other locations they have. It’s another sign that the payday lender has a strong reputation.
Evaluate Lenders
You have to remember that even though you need cash now, you still have the power to make a smart decision.
Do your research online and call different lenders to evaluate the fees, terms, and loan conditions. You might be able to save money on fees just by making a few phone calls. Be sure to ask questions and watch for the warning signs of some lenders.
When you don’t have a lot of cash on hand, saving a little bit of money can help a lot.
Fill Out the Loan Application
Once you pick you pick out a lender, you have to go through the process to apply for a payday loan. Depending on the lender, you can get approved immediately or within a day or two.
You need to be completely honest on your application. Fabricating your income or income source will be enough to get your loan denied.
You’ll then be asked for ID, a bank account, and your proof of income. This will usually be in the form of paystubs from your employer. The lender wants to make sure that you meet their minimum age requirements and you have the ability to pay back your loan on time.
Get Approved and Get Cash
When you apply for the loan, the lender will take your information and run a credit check. Remember that a hard credit check will have an impact on your credit score, especially if you have multiple credit checks in a short period of time.
You’ll want to review the paperwork one last time before you sign up for the loan. Be sure to understand how much you’re taking out, the fees, and when the loan needs to be paid back.
Once you’re approved for a payday loan, you’ll be able to get your cash. How fast your cash depends on the lender. Some will offer same day payday loans, while others take a couple of days.
Payday Loans Aren’t a Slam Dunk
The main reason why over 12 million people turn to payday loans. You can walk into a location or apply online and get the cash you need almost immediately.
It may seem like that payday loans are similar to free money, but that’s far from the case. You still have to qualify and meet the minimum requirements in order to get a payday loan.
Reasons to Be Denied a Payday Loan
In most cases, you have to be at least 18 years old, have a bank account, and have proof of income. Even when you meet these requirements, you may get turned down for a payday loan.
For example, if you get paid in cash every week and apply for a payday loan, you have no way to show proof of income. Lenders want to see paystubs from your employer that shows how much you’re paid and how often.
Payday loan companies also won’t loan to you if you have more than one payday loan out. That’s a red flag to them that you’re stuck in a cycle of debt and they aren’t willing to take the risk to lend money to you.
Are you currently collecting unemployment or welfare and plan to use that as proof of income? That won’t work for payday lenders. It’s all about the income that you have coming in or are expected to have in the next few weeks.
Payday loan lenders will lend you money, but they expect to get paid in the terms that you agreed to. If you don’t pay the loan back, you’ll be subjected to more fees.
Another situation where a payday loan will be denied is if you’re self-employed. When you work for yourself, your income can be inconsistent and hard to prove. Lenders want to see a paycheck stub from an employer.
Bad credit scores and bankruptcies are other reasons why you may be denied for a payday loan. Some lenders may still let you borrow money, especially if the bankruptcy occurred several years ago.
Payday Loans Have A Lot to Offer Borrowers
Payday loans are known for a lot of things. Borrowers love them because they’re convenient and fast. State legislators aren’t crazy about them because the industry has a lot of predatory lenders.
Payday loans can be a great financial tool to turn to if you’re in a situation where you need a small amount of cash fast.
It’s up to you to do your research and use this financial tool responsibly. That means knowing the payday loan laws in your state, understanding the fees and terms of the loan, and making sure you work with a reputable lender.
You also have to make sure that you can pay back the loan on time, fees and all. Do you want more great financial tips? Take a look at our Learning Center for more articles and information.