Short on budget? Are you considering what type of loan is best for you? If you are thinking of availing a payday loan, here are the things you should know beforehand.
What Is a Payday Loan?
These kinds of loans are a short-term financial solution that will be based on the check you can provide. Among all the other loans, this is the quickest and easiest way to get your much-needed cash.
However, of course, there are drawbacks when it comes to a quick loan. The easier you get the money, the higher the interest rate. In fact, some can even be charged up to 400% on top of your loan. With that being said, a payday cycle loan can be challenging to break.
How Does It Work?
Different banks have different processes when it comes to allowing a borrower to enjoy a payday loan. Generally speaking, it works by giving a post-dated check payable to the bank or lender amounting to the borrowed amount with interest and loan fees, which usually amounts to 15%. The lender may or may not verify your source of income, making it easier to get approved. However, you need a checking account and proper identification. Upon receiving the cash, the lender holds the check for a given period until the borrower’s next payday. As soon as the payday arrives, they will cash the check.
What happens if you do not have enough money in the bank to cover the loan? The borrower needs to pay the additional fee and provides a new check, or they can avail of a new loan to pay of the current one. And when this happens, you will be in a payday loan cycle, which is hard to get past through.
Despite its drawbacks, here are some advantages to look at:
1. They are accessible and are perfect for emergency funds. In fact, some lenders can even complete the transaction within 5-15minutes, and some can provide a decision within 24 hours. This is perfect if you need emergency funds such as hospital bills and other payable loans.
2. You do not need a lot of requirements. In most cases, lenders ask for the borrower’s proper identification, checking account, and proof of income. What they usually need is proof that you can pay off your loan in the given time.
3. As an unsecured loan, the lender does not have any hold on your personal properties, that is, if you can’t pay off your loan. However, what they have are your personal details, which come with your bank account. Still, they have the capacity to take you over to the court in the worst possible scenarios.