Online Payday Loans - All You Need to Know
Online Payday Loans - All You Need to Know
The annual percentage rate can go high on these loans hence, you should consider every aspect before deciding.
Payday Loans – What Does It Mean?
Payday loans are a type of short-term loans granted to people with a regular income. These loans usually have higher interest rates and are mostly meant for borrowers with a poor credit score. The amount is comparatively low and ranges between $300 to $1,000. Moreover, the repayment period is between 15 to 30 days.
Ideally, the approved amount is a portion of the monthly salary. The concept is you take a small loan upfront and pay it back with the next paycheck. Some lenders also call them check or cash advance loans. The best thing about payday loans is that borrowers can get the required funds within the same day of application.
Payday Loans – How Do They Work?
You can apply for payday loans online. However, depending on the demographics, some lenders only accept physical copies of the application submitted through any branch office. Online payday loans aren’t the same as consumer or personal loans, hence the prerequisites and eligibility criteria, even the amounts one can borrow depend heavily on state laws.
Once approved, you’ll receive the funds directly into your bank account or via check. As per the Consumer Financial Protection Bureau (CFPB), payday loans can attract an APR of 400% or more.
Usually, the loan is due by the next paycheck, normally in two or four weeks. If you fail to clear the loan plus penalties by the due date, the lender will cash your check or debit your account electronically. If you need an emergency loan and are okay with a high APR, a payday loan is an option.
Payday Loans – The Application Process
The application process and the eligibility criteria are rather straightforward compared to standard loans. These days, most lenders accept online applications.
Since these loans are designed to be quick (15 to 20-minute approval times in most cases), they have the simplest eligibility requirements. Most lenders will agree to give you a loan if you have the following:
(a) A checking account
(b) 18 years of age or above
(c) Stable monthly income (proof required)
(d) Valid proof of identity
You might also need to write a postdated check for the whole amount or grant auto-debit authority to the lender. These loans are available for borrowers who have a low credit score, hence lenders do not perform a credit check.
Payday Loans – Interest Rates
The interest rates are probably the biggest drawback of payday loans. As per the research data available online, the average interest rate on this type of loan is around 391%. Carefully check and compare the interest rates from every lender. You might find lower rates as well, but it is ideal that you read the fine prints and consult the loan helpdesk of the preferred lender to get a clearer understanding. The APR varies from lender to lender, and also from state to state.
Payday loans aren’t the right choice if you have hand-to-mouth income. We recommend that you check the available payday alternative loan options.
Payday Loans – The Costs Involved
Typically, borrowers have to agree on finance charges that range between $15 to $30 per week for every $100 consumed. For a four-week loan, these charges can add up to a larger amount. You must have a clear discussion with the lender before signing. The charges can be complicated to understand at first.
For instance, you take a loan of $100 for 30 days. The lender charges $15 per week as fees on the amount used. So, after 4 weeks, the charges accumulate to $60, and your total outstanding becomes $160. If you calculate the rate, the APR stands at 730%.
As you can see, the costs involved in this loan type are extremely high. Therefore, we suggest that you should try applying for standard personal loans instead. These loans need a fair credit score, but the interest rates are also significantly lower. Learn how you can start to build credit scores up for accessing better rates.
Do Payday Loans Impact Your Credit?
Technically, lenders do not require a credit score to offer this loan. Hence, there are no credit inquiries on your account, and your score remains as it was. Furthermore, this loan doesn’t show up on your credit history.
That being said, a payday loan is more of a secured loan. The lender will ask you for a post-dated check or auto-debit authorization before transferring the funds to your checking account. Additionally, if the loan account becomes delinquent, collection agencies will report it to the bureaus, thus damaging your score.
Are There Any Alternatives For Payday Loans?
One of the best alternatives to online payday loans for bad credit is opting for debt consolidation, especially if you have a poor credit score. Although the eligibility criteria are stringent, if you are approved to consolidate your debt, you’ll receive extended repayment terms, lower interest rates, and other benefits for restoring your finances.
Some other preferable alternatives to payday loans include:
- Income-driven repayment plans - Depending on your credit history, debt-to-income ratio, discretionary income, and other state laws, you can either get a lower monthly installment or delay the payments temporarily while interest accrues.
- Peer-to-peer lending – This is another good choice if you’re stuck with bad credit given your application is sent to a pool of lenders rather than one lender. This increases your chances of approval and even grants you the opportunity to negotiate better rates.
- Personal loan – Even with low credit, you can get a personal loan. The interest rates might be higher based on your score, but still lower than what you’ll be paying for a payday loan.
Conclusion
Finding the best online payday loans is straightforward. If you have a stable monthly income, all you need to do is visit the website and apply. As the documentation process is minimal, you will get quicker approvals. Still, make sure to cross-check, compare the offered rates, and evaluate all other alternatives before deciding.
