It is common that when people budget their finances they develop a tendency to ignore the unforeseen expenses that may be brought about by various emergencies in the near future such that if these emergencies befall on them they cause a big wrench to their budget.
These emergencies may be unexpected medical bills, hefty funeral expenses, unplanned travels and outrageous home bills and taxes. People with unforeseen financial expenses, in dire need of cash, have a few options to consider.
Top of the list is taking out a loan. Second, on the list is borrowing money from friends and relatives. Most people prefer the first option.
A loan generally refers to debt given by an individual or organization to another individual or organization at an agreed interest rate and repayment period.
Loans can be classified as either long term or short term. Short-term loans have a very short approval and processing time compared to long-term loans.
To meet emergent expenses that demand immediate attention, most people opt for a loan that does not require a lot of processing and can get them the money as quick as possible.
Other names for payday loans?
Most borrowers take out payday loan. A payday loan is also referred to as a cash advance loan. It is a short-term unsecured loan that is extended to a borrower who is usually employed. The borrower is expected to repay it by his next payday.
The popularity of payday loans?
Due to the urgency in meeting the borrower’s needs, online payday loan have gained popularity among many who are in a financial crisis.
It is imperative for the borrower to be well informed about the type of loan he is about to take out. You should thoroughly review all aspects of the loan and determine whether it is suitable for you.
Below is a list of 10 things you need to know to determine whether or not it is the right option for you.
They are unsecured
Payday loan is generally unsecured. This means the borrower does not have to put up his property as collateral to get the loan. Instead, the lender asks for other important documentation from the borrower.
Lenders of payday loan face the great risk of losing money in the event that the borrower default payments.
Have high- interest rates
Due to their unsecured nature, payday loan lenders charge very high- interest rates for their payday loan. These outrageous rates are linked to the risk the lender faces in the event that the borrower defaults payment.
The annual percentage rate for most payday loan is supposed to be 36%-40%. However, payday loan have sky-high interest rates which may hit up to 300% APR. Compared to other forms of borrowing, payday loan have exorbitantly high- interest rates.
No credit check
Many borrowers are often haunted by a dark credit past. Their credit score may have been hurt due to either delay or default in making payments in the past.
A poor or low credit score reduces the debtor’s borrowing capacity. It becomes difficult for the lender to extend funds to this type of borrowers.
A low credit score may increase interest rate when the lender extends a loan to you. Most lenders perform credit checks to determine whether or not they are lending to credible borrowers.
Payday loan is borrowing options for those who have been rejected due to their bad credit score. This is because lenders of payday loan do not perform credit checks.
Get payday loans online
The accessibility of the internet has led to payday loan being available online. Online payday lenders enable borrowers to enjoy payday loan within a short time. Borrowers are expected to complete the loan application online.
Upon loan approval, the funds are transferred into the borrower’s account. On the borrower’s next payday, the outstanding debt is withdrawn by the lender electronically from the borrower’s account.
What payday lenders expect from you
Like any other forms of borrowing, you are expected to meet the criteria to qualify for a loan. Most lenders expect you to put up property as collateral to qualify for a loan. In payday loans, collateral is not needed.
This makes taking out a payday loans quite easy as you do not have to worry about losing your property in the event you default payment. To qualify for a payday loans, lenders require you to be at least 18 years old.
You are also expected to provide some verification of employment and should have a recurring source of income. You may provide proof of employment by showing recent paystubs and bank statements.
Payday loan may hurt your credit score
Payday loans come with extremely high- interest rates which makes the repayment amount much more than you had initially borrowers. This places a heavy financial burden on the borrower in the long run.
Due to their expensive nature, payday loan may force a borrower to sink further into debt. Also, it becomes difficult for the borrower to make payments promptly which may adversely affect their credit score.
Like in any field of business, the lending industry is filled with both genuine and rogue lending companies. You should be more careful when picking the company to work with. Most payday lenders operate online.
When visiting their website, scrutinize carefully and see whether the lender is licensed or not. Lenders who do not indicate the APR they charge on the loans should also be avoided as they may have very high APRs.
This refers to an agreement signed by the borrower which allows the lender to deduct what you owe him directly from your account through your debit card when payment is due.
This generally implies that the lender has the right to withdraw funds directly from your account when the loan matures. If by sheer bad luck, you do not have enough funds in your account, you may be forced to apply for an overdraft from the bank so as not to miss out on other bill payments too.
This means that the faster it takes for your payday loan to get processed, the same speed it takes to mature. Payday loan matures very quickly, usually by the next payday or within 30 days.
Alternatives to payday loan
Before applying for a payday loan, it is imperative that you consider other forms of borrowing which may suit your financial situation as well.
You should try other forms of lending with favorable interest rates and fees such as auto title loans, personal loans, and pawnbrokers, among others.