What do you need to know about payday loans? -GreenDayOnline
A typical payday loan is a short-term loan that allows borrowers to borrow money against their future paychecks.
Why do people need to take out payday loans?
Payday lending is one of those things that most people don’t think about until it’s too late. Payday loans are designed to help people make ends meet during a temporary emergency, like paying rent or medical bills. But what credit score do you need to have to get a loan? On this page https://greendayonline.com/personal-loans/what-credit-score-do-you-need/, you will find the answer.
But what happens when a person has no choice but to use a payday loan because they don’t have enough cash to cover basic expenses? There are ways to avoid getting into such a situation in the first place, but there aren’t always options for those who’ve already fallen victim to the cycle.
Here are some of the reasons why people end up taking out payday loans:
- You just got laid off and haven’t found another job yet.
- Your car broke down, and you must fix it before work.
- You lost your wallet and need to replace everything inside.
- You had a medical issue and needed to pay for treatment.
Payday Loan Benefits
Payday Loans are one of the most common types of short-term loans. They allow borrowers to borrow up to $1,500 without having to provide proof of income or assets. This makes it easy for people to obtain cash when they need money quickly. But there are many benefits to payday loans, including:
- Quick Approval You can usually apply online in minutes and receive an approval within 24 hours.
- Low Rates Borrowers pay very low rates compared to other loan options. For example, you could earn interest rates as high as 400% APR.
- Flexible Repayment Options You can repay your loan over ten weeks or 12 months.
- Easy Application Process No paperwork is required to apply for a payday loan.
- Best for emergencies If you need cash fast, you can use your payday loan to cover unexpected expenses like car repairs, medical bills, or even groceries.
How Payday Loans Work
Payday loans are short-term cash advances that allow you to borrow up to $1000 without providing proof of income. You pay interest rates ranging from 300% – 1000%. If you don’t repay the loan within 14 days, it becomes a payday loan debt that you must repay over 30 days. Repayment terms range from 2-4 weeks. The average borrower takes out two payday loans per year.
If you decide to get a payday loan, here’s how it works:
- You fill out an application at a local store.
- After you apply, you will receive a decision within a few minutes.
- Your funds are deposited directly into your bank account within one business day.
Responsible alternatives to payday loans
Payday loan companies prey upon low-income Americans looking for quick cash. They advertise fast access to funds often within minutes and charge exorbitant interest rates. While some people turn to payday lenders because they don’t have credit cards or bank accounts, others use them because they face financial difficulties due to medical bills, car repairs, and other expenses.
The Federal Trade Commission estimates that one out of every four borrowers pays a total of $7 billion annually in fees related to these short-term loans. And according to the Consumer Financial Protection Bureau, roughly 2 million consumers took out over $1 billion worth of illegal loans in 2016 alone.
Fortunately, there are responsible alternatives to payday loans. These include online installment loans, paycheck advances, and prepaid debit cards. But it’s important to know your options, how much you might pay in fees, and whether you’ll qualify.
Online Installment Loans
If you need money quickly, consider applying for an online installment loan. This type of loan allows you to borrow a set amount of money, usually between $100 and $500, and repay it over several months. You typically must make monthly payments based on your income, although some lenders offer flexible payment plans.
These loans carry no hidden costs, and you won’t be charged extra fees if you miss a payment. However, like most forms of borrowing, the APR (annual percentage rate) for online installment loans tends to be higher than those offered by traditional banks and credit unions. For example, the average APR on a $300 online installment loan ranges from 400% to 700%.
Auto Title Loans
Another option is to take out a title loan. With this type of loan, you provide collateral such as your vehicle, motorcycle, or boat, which serves as security for the loan. After you sign the contract, the lender sends your title documents to the DMV, where it’s registered. Once the paperwork has been processed, you receive the cash you need.
Title loans tend to cost less than payday loans, but they also come with additional fees. In addition, you may not be able to obtain a title loan unless you own your vehicle outright.
Prepaid Debit Cards
A third alternative is to use a prepaid debit card. A prepaid debit card is similar to a checking account, except that instead of receiving a check each month, you can withdraw cash using your PIN. Prepaid debit cards are available at many retailers, including grocery stores, gas stations, and convenience stores.
You can use a prepaid debit card to purchase items at any store that accepts MasterCard or Visa. The downside: Fees associated with withdrawing cash from a prepaid debit card can add up. Some cards charge a flat fee per transaction, while others charge a small percentage of the withdrawal amount.
In addition, some cards have minimum balance requirements. You could incur overdraft fees if you don’t maintain enough funds in your account. Finally, because the FDIC doesn’t insure prepaid debit cards, you should keep them separate from your regular bank accounts.
Paycheck Advances
Finally, consider taking out a paycheck advance if you’re looking for a fast way to get cash. Paycheck advances are short-term loans that allow you to borrow a specific sum of money against your next paycheck. Typically, these loans range from $200 to $1,000.
The interest rates on paycheck advances are generally lower than those on payday loans. And unlike payday loans, you don’t have to worry about paying back the entire loan amount when your next paycheck arrives. Instead, you only pay off what you borrowed during the previous week.
