No matter how mindful you are in handling your finances, you’ll sometimes run out of money for different reasons. This is particularly daunting if there’s an emergency. Thankfully, one can resolve this by applying for a payday loan, which is quite common nowadays, allowing you to find a lender that’s best suited to your needs.
A payday loan, commonly known as cash advance, is a form of short-term financial loan for those who may need extra money urgently. It’s important to keep in mind that before taking out a payday loan, you must know what you’re getting into.
Before discussing how payday loans work, you may be wondering whether it’s the best way to borrow money for your needs. Payday loans are handy for emergencies and sudden shortages in cash. It’s a short-term loan that can be beneficial because:
- Payday loans are handy: Sometimes, you only need a small amount of cash for you to survive until the next payday. Payday loans are good for borrowing funds that you can repay on the following salary day.
- Payday loans are quick: When you take out a loan from a reputable payday loan provider, you can quickly obtain the funds that you need.
- Payday loans are good for your credit: When you have a bad credit history, your options become limited when you want to borrow money. By repaying your payday loan on time, you can give your credit a boost, which will eventually give you access to loan products with better terms.
Payday loans offer several benefits, but you also have to keep in mind that they’re not designed to fix persistent, long-term financial problems. It should only be used during emergencies. To avoid any legal troubles, you should be capable of repaying what you owe.
Payday Loans: How They Work
How do payday loans work? In addition to being known as cash advance, payday loans are also referred to as check advance loan, payday advance, payroll loan, or quick cash loans. They’re short-term loans with higher interest rates than typical bank loans and may be granted even if the borrower’s credit rating is poor.
Understanding how the payday loan process works lets you see how payday loans can help you. That being said, here’s how payday loans work:
1. Payday Loan Types
There are two types of payday loans: secured and unsecured. In secured loans, the borrower applies to a lender and agrees to put up collateral, usually their house. The asset protects the lender in case the borrower defaults on the loan. Unsecured loans, on the other hand, don’t require collateral as a condition for approval.
The second type of payday loan is the most common. Unsecured loans are used for almost anything that needs cash fast–from groceries to car repairs, medical bills, debt consolidation, and home improvements.
The type of payday loan you choose will affect the interest rates. Lenders will also charge a different rate based on your loan’s size and what type of credit you have. Lenders may charge higher interest rates for those who have bad credit.
2. Payday Loan Requirements
The payday loan process is quite simple. A borrower applies for a payday loan, which is approved based on the qualifications set by a lender. The loan provider will then contact the borrower and let them know how much money they can borrow, along with the terms and conditions. The borrower is required to meet the requirements set out by the company so that they can get their money.
Some basic requirements must be met to get a payday loan. To be eligible, the applicant must have a valid checking account in good standing and have a regular job or have enough earnings for at least six months. The borrower should also be of legal age and a permanent resident of the country where the loan will be granted.
Here are some things you should know when applying for a payday loan:
- Before applying for the loan, it’s crucial to verify the payday lender’s requirements to avoid getting rejected and getting a hit on your credit score.
- The application process may require that the applicant fax a resume, a job application letter, a bank statement, and two paycheck stubs.
- If you qualify for a payday loan, the lender will conduct a credit check and verify your income and assets before approving your application. The credit check serves to protect the lender’s interest because they don’t want to risk loaning money to an applicant who’s not likely to pay it back.
3. The Payday Loan Process
The payday loan process is simple and convenient. But finding a reputable payday loan provider to work with is half the battle. You can try to get a loan from a bank, a traditional lending institution, or a direct lender. The last option may not be the cheapest way to get a payday loan, but working with a direct lender also lets you take out an unsecured loan with poor or zero credit.
Direct lenders are non-traditional online loan providers that accommodate borrowers with varying circumstances. Online lenders’ application process is often quick and easy, so this is the most popular method for most borrowers to obtain a payday loan. There are, however, a few things you should know before applying for a cash advance through an online lending firm:
- Take advantage of sites where lenders offer online reviews of different companies. Online review sites are a great way to learn about the best companies and which ones will give you the best deals.
- You may want to read reviews of your preferred lender. Before you sign anything or submit your application, it’s worth checking out the company’s reputation online to see what other people think about it. Keep in mind that predatory lenders do exist.
- Find out the fees charged by your online lender. If they charge an annual fee or any other type of ongoing fee, they may not be a suitable choice if you have poor credit.
Also, understand the fees that may apply when you take out payday loans. For example, if you go with an online lender, you may be required to pay a fee of some sort. Check into the fees to see how much they charge for processing the loan and any additional fees that may apply.
- Read through all of the loan’s terms and conditions. Make sure you understand what your options are and ask questions before signing the required documents.
- Find out how long the company will take to process your application and the time it takes to receive your loan amount. Usually, payday loans are approved within 24 hours, although the turnaround time can vary from lender to lender. This information can give you some idea about how long it’ll take to receive your loan.
- Once approved, you’re required to either have the cash in your checking account on the date of your payday or to place an advance cash order to have funds deposited into your checking account, usually within 24 hours.
In most cases, you’ll be able to deposit the funds at a local ATM. However, if you have to use the ATM to withdraw your cash, the cash advance company may require you to fill out a withdrawal request form in addition to other paperwork. Most payday loan companies will allow you to make one withdrawal per month, but this amount is usually deducted from your loan balance.
4. Things To Keep In Mind
Traditional and online-based forms of loans have advantages and drawbacks. The key thing to remember is to research both forms of loan options carefully since each has its pros and cons.
Ask yourself how much you’re willing to risk to get the loans. While there’s no way to predict the future, there’s a risk involved in getting a payday loan. That’s why you should make sure you’re comfortable with the amount you can borrow, the interest rates, and the fees that apply to borrowing a loan.
Takeaway
With the current economic downturn in most parts of the world, people need to know how the payday loan process works and what options are available to them. A payday loan is a short-term loan given by financial institutions to cover unexpected expenses or urgent needs. Payday loans can help people who experience emergencies and unexpected bills that cannot be covered by regular banking. Most payday loans can be done through the Internet as well.
When you’re ready to find out how payday loans work, talk with lenders about any charges associated with your loan and compare fees with other options. The best way to find a lender that offers the best terms is to research online.
Many online resources can help you compare the various payday loan fees and rates offered by different lenders. Like any other form of personal borrowing, borrowers may find themselves paying high-interest rates and higher fees to get a payday loan approved. With the right information and guidance from a reputable online lender, you can secure a payday loan.
