Low credit can suck. Especially when you are in urgent need of money. Credit bureaus and banks could reject all your applications leaving you helpless. But not anymore. There are loans subject to your payroll known as payday loans. What are payday loans? Good question, read on to find out more.
What are Payday Loans?
When the bank and credit unions can’t help you, lenders can. Payday loans are short term loans offered by approved lenders. These lenders can offer a specified amount for the loan together with the terms of the loan.
The loans are unsecured; therefore, they don’t require collateral in case of bad debt. They do need some bank statements to approve any loans by your payroll.
How do They Work?
Payday loans are quite simple. The first step is to search for a lender like payday loans Canada. From there, the process of application begins.
There are certain requirements needed to be eligible for a loan. They include:
● You have to be above the age of 18.
● You must reside within the country of application.
● You must have a source of income that is stable. An amount that can be specified.
● Proof of financial statements.
● Must have an active bank account.
Lenders could do a hard sweep to check that the papers are true and credible. After much deliberation, an application decision will be made on whether it was approved or denied.
Upon approval, loan documents will be sent out for your signature. It will be the binding contract between you and the lender. Any alteration in this contract will be regarded as a breach of contract.
That could lead to prosecution and lawsuits filed against you. Under the documentation, the lender will note all the details regarding the loan the interest rates and repayment terms.
Depending on the amount of the loan, the repayment period could be long or short. An extension period could also be included as discussed between you and the lender.
Once the documents are signed and seen, the money will be credited to your stated bank account in a day or two. The fact that payday loans are connected to your payroll. Your lender could ask you to write a post-dated cheque.
This cheque should total the amount of the loan and the interest to ensure that when the repayment date arrives, there shall be no hiccups. This post-dated check is to be deposited to be a bank on the same day you are to expect your payroll.
Since the dates will coincide, the payment will be valid and be deposited back to the lenders’ account.
Reasons People Take Payday Loans
There are many reasons why people take out loans from the bank, credit unions, or lenders. These reasons explain why they have become more common.
● Easy to Acquire
It’s no lie that getting a loan off a lender is much simpler than getting a loan from a bank. The process is less complex, and communication is smoother due to lack of tight laws.
● Can be Dispatched to Individuals With Low Credit
Having a low credit can limit you from various financial services. Loans are only accepted under certain conditions, if at all rendered in the first place.
● No Savings – No Problem
Saving can be difficult, especially if you live hand to mouth. The amount you receive as income, less tax, can be devastating once you realize your expenses take over 80%. That is how payday loans work; they save you on a rainy day.
● Availability
The market for payday loans has rapidly increased over the years. Lenders see this as a lucrative form of passive income. This means that there is a ready market for them.
Reasons Not to Take a Payday Loan
It is highly advised not to take these types of loans for various reasons. Read further to know why payday loans are bad.
The High Rate of Interest
Payday loans have incredibly high-interest loans. If you were to sign off on an agreement with a lender without reading the fine print, you could incur an interest payment of over 300%. Unlike banks that charge you under 10%.
The Recurring Effect
Once you begin to borrow the payday loans, the urge to borrow after you have repaid your loans will still be there. It will be a cycle of borrowing until you decide to put an end to it.
Illegitimate lenders
More often than we accept, there are illegitimate lenders who pose as authentic lenders. They could damage your credit and cause more frustration and grief than before.
Payday Loan Laws
Legally, there are states that don’t allow payday lending. For example, within the USA, the following states are not allowed to have payday lending services.
● Arizona
● New York
● North Carolina
● West Virginia
● South Dakota
● Massachusetts
● New Jersey
● Vermont, among others.
These states claim that they have extremely high rates and they have predatory practices. Stepping against these laws could lead to legal action against you.
How to Avoid Taking Payday Loans
Loans are supposed to be taken on a rainy day. When you are between a rock and a hard place. Probably not an everyday affair. So how can you avoid this endless cycle of borrowing?
Create a Culture of Saving
Every penny you set aside could aid you one day. Cumulatively the money you spare after you have paid your expenses can go a long way to avoid these high-interest rates.
Seek Other Alternatives
There are other ways you can seek financial assistance besides using payday loans. Ever heard of peer to peer lending or 401K loans? They are also a great way to borrow a loan without incurring high repayment rates.
Evaluate the Necessity
There are certain considerations to look out for before you take up a payday loan. If at all, there is no emergency or its not the only alternative, then avoid taking the loan.
Confused?
Stilling wondering about what are payday loans and if they’re right for you? Subscribe to our site or email us so that we can guide you on these payday loans.
They don’t have to be a burden to you. There are other ways to overcome the burden of debt and break the borrowing cycle.
