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Payday Loans and Its Important Details
Payday loans are one of the most popular loans all over the world, simply because of its convenience, accessibility, and speed. Unlike other types of loan, there’s no need to provide a handful of paperwork, guarantor, or even collateral. It’s easy to acquire and often, you can have it in as fast as one hour. That being said, you can resolve a sudden bill or emergency right away. What makes it extra special is you can get it without leaving your place. Anyone who has a laptop and an Internet connection can start the application over the Internet, some loan options can even be acquired with just a simple text.
But before you hit the application button, here are a few things you need to know first about payday loans:
What are Payday Loans And How It Work?
Payday loans are short-term loans, offering a small amount that is enough to cover a month-worth of expenses. It is usually based on the loan seeker’s postdated check held for a deposit on the agreed repayment date or on electronic access to debtor’s bank account. Payday loans will require the borrower to write a postdated check for the original loan amount borrowed plus the interest rate and other charges. Otherwise, the loan seeker may sign over an electronic access to their bank accounts to receive the cash and settle the loan.
As the name suggests, the loan’s due date is on the next payday, although in some cases it may last after a month. The challenge on this kind of loan is the repayment since it needs to be settled in one lump sum. In case the borrower is not yet capable of repaying the loan in full, he can settle the additional charge first so the lender can allow the loan to roll over or be extended. Meanwhile, there are loan providers who may offer longer-term payday installment loans in return for the borrower’s authorization to electronically withdraw small repayments from its bank account, normally on every payday. It ranges from £100 to £1,000, depending on the loan’s terms and conditions.
Although it is fast and convenient, the loan is expensive, with an Annual Percentage Rate (APR) that can go up to 400%. It is costly compared to other types of loan, thus it should only be used as a last resort. But despite its exorbitant rate, many borrowers are enticed to acquire the loan mainly because of the minimal requirements it demands. Normally, the borrower’s bank account is enough to get the lender’s approval, providing that it is in good standing. It’s also necessary to present a proof of stable income and identification. The lender will not conduct a full credit check; however, they might use the credit score as the basis of the maximum loan amount you can borrow and the interest rate to be applied.
Being employed is important since the loans are based on the borrower’s ability to settle the loan, not on their previous financial behavior. Meanwhile, there are lenders who are open to loan seekers who are unemployed but are recipients of benefits or pension. Unfortunately, payday loans are known for creating a debt trap. Most borrowers are tempted to roll over the loan, incurring additional charges. This is both advantages and disadvantageous at some point; extending the loan gives the debtor a chance to have the money he needs to settle the full amount, however, it means dealing with newly accumulated fees on top of the principal rate and interest.
Some borrowers who were not able to catch up with the loan default on it, thus putting damage on their credit report. Therefore, to avoid such mistake, be sure that your income is enough to cover the loan first before you send an application. Finding the right payday loans provider also helps in scoring a cheaper alternative. Below are some ways on how to choose the appropriate one:
First and foremost, it’s important to ensure that the payday loans company you’re dealing with has the right license to operate. In some states, payday loans are illegal, therefore, it’s imperative to check with the credit agency first to know if you are borrowing from a legitimate provider.
Payday loans have made cash advance very accessible and quick; there are even lenders who are can grant the access within minutes and complete the procedure in less than an hour. However, do not be deceived by how quick you can acquire cash from these companies. Rather, focus on checking the interest rates carefully; although payday loans are expensive, there’s a fine line between being reasonable and being exorbitant. At the end of the day, you don’t want to settle an interest that is bigger than your loan principal.
Aside from the interest, you also need to take note of the loan’s terms and conditions. For example, the payday loan is due between 15 to 30 days; find out which lender offers a repayment period that will favor your capacity to pay. Thus, before sending an application, it’s best to get quotes from various payday loans companies so you can compare which lender offers the best deal.
Do You Need Loan Brokers To Get Payday Loans
Payday loans are easy to acquire, however, not everyone will be accepted. This leads most borrowers to loan brokers – or professionals who act as a middle person between a lender and a borrower. To help you decide, below are some pros and cons of a loan broker:
- Brokers have access to a large network of loan providers, thus giving you a chance to find the right one who matches your needs.
- The service is generally for free, although there are brokers who may get their commission fee directly from the borrower
- You may be presented a loan provider that you’ve never heard of.
- The broker doesn’t have direct access to the lender’s rates and policies, so you won’t have any idea yet how much you need to settle.
- Some brokers may resell your information to third parties for their own interest unless you tell them directly not to.
- You’re not aware which payday loans provider your application is going to.
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