No matter how good someone is at saving, life can still happen, and they end up short of money to cover an expense. Unfortunately, credit isn’t always available for people who need quick access to cash.
Most bank loans require individuals to produce a credit score. Therefore, if you don’t have a bank account or credit card, you may be ineligible to apply for the loan.
Thankfully, all hope is not lost since some loan facilities are willing to offer short-term financial assistance. However, you should manage this credit well. Today, we will talk about payday loans, a type of short-term credit, to help you decide whether or not to take them.
What Is a Payday Loan?
It is a cash loan that’s usually deposited into your bank account. It’s called a payday loan because you typically repay it during your next payday.
Individuals use these loans to cater to emergencies or unexpected expenses, and mostly, they are offered by private businesses. Generally, payday loans are easy to apply for, qualify and get. As long as the applicant can prove that he or she can pay the loan back, the lender will likely give them the money.
They are also known as cash advance loans, check advance loans or post-dated check loans.
What Are the Requirements of a Payday Loan?
The main requirement is that a borrower proves that they have a source of income. Usually, lenders do not conduct a hard credit check when determining a person’s eligibility. Instead, they do a soft credit check to know a borrower’s employment and income statements.
Also, note that these loans are only given to those who are 18 years and older and have an active check-in account. Again, you’ll be required to provide valid identification, a person who can be contacted if you’re not reachable, and a permanent address. However, the exact requirements depend on a lender.
How Do Payday Loans Work?
Once you fill out the application, the lender will review it and decide whether or not you are eligible. If you’re approved, the funds will be deposited in your account. You should pay the loan back within 14 days. Also note that should you change your mind about your payday loan after an application, you have two days to cancel it.
Most lenders will need you to fill a form authorizing them to withdraw money from your account during the due date. But you can also decide to provide a postdated check to pay your loan. Bear in mind payday loans are paid one time, meaning that the lender will deduct the total loan amount, including the interest and any fees.
Payday loans are approved quickly compared to traditional loans. That’s because lenders do not conduct rigorous screening to access your credit record and scores. Lenders only focus on your income and analyze your financial stability when deciding. Therefore, you can have the loan approved within 24 hours.
What If I Can’t Pay My Payday Loan?
As we have earlier mentioned, payday loans are to be paid during your next payday. That means when you receive your income or Social Security benefits. However, if the due date is approaching and you are unable to repay, you have two options;
• Rollover Your Loan
Some lenders may allow you to rollover your loan, meaning that you’re given another month to pay the loan. Now, this is a helpful solution but it means more interest and charges. Thus, you will owe the lender more money than what you previously did.
Only consider a rollover if the reasons you can’t repay are temporary and you’re sure that you can clear the balance in full in the next month. Bear in mind that you can’t refinance the agreement more than two times unless it is forbearance.
• Stop Your Payments
If the due date is approaching and you can’t afford to repay, you can stop the lender from taking the payment. However, this will depend on the method you agreed to repay the loan with. Note that during short notice, stopping the loan may not go through.
For those using direct debit, you can write to your bank or use mobile banking to cancel the fund transfer. However, it’s good to notify your lender first. You can also do the same for a standing order and a check.
How to Manage Payday Loan Debt?
Payday loans charge high-interest rates as they are short-term. It’s why you need to manage them effectively to avoid ending up in a debt cycle. Here are some management tips;
- Use them as a temporary solution- don’t use payday loans to cover regular expenses. They should only be a temporary solution until your finances are stable.
- Don’t borrow more than what you need- some lenders may offer you more money, but please stick to the amount you need. Otherwise, you may easily end up in a debt cycle.
- Pay your loan on time- this will help you avoid fees and penalties. As such, it reduces your debt exposure.
- Don’t take multiple payday loans within the same period- as it can get you into more debt.
Payday loans can be a lifesaver when you need quick access to money. However, please only apply if you’re sure you can afford to pay them back in full. Also, make sure you read the loan agreement and even keep a copy to yourself.