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A payday loan sometimes called a cash advance or payday advance, is a short-term, high-interest loan based on your income. You can usually get approved for these loans fast, which is great when you’re in a tight spot.
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These loans consist of small amounts of money that don’t typically require a credit check. So if you have poor credit or lack credit history then they can be a good place to turn to. Most do need to be paid back within 14 to 30 days for the total amount.
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How do Payday Loans work?
Generally, you will need to show a current pay stub as proof of income, and that’s it. You will then be loaned the money with a short-term due date for repayment. Loans are typically due within 14 to 30 days, depending on your agreement with your lender. Since the lenders are risking a lot to lend to people they are not entirely sure will pay them back, the interest rates and service fees are high. Missing a payment can quickly spiral out of control and leave you in a massive amount of debt or a vicious cycle of borrowing over and over again to keep up with your payments.
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Who is a Payday loan right for?
Payday loans are fine only if you are able to pay them back in full on the due date plus the fees and interest. If you are considering a payday loan, be sure to have a repayment plan in place. Also, only take out a small amount of cash, no more than $500. Yes, you will get your loan in your bank account fast and that can be a lifesaver during a financial emergency but be aware of the fees and interest charged by payday lenders.
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Do Payday loans affect your credit?
Since Payday lenders don’t check credit before giving out a loan, your credit won’t be affected when you apply. Making your payments on time and keeping your loan in good standing won’t affect your credit since the lenders don’t report to the credit unions. However, if you default on your payments and they send your account to a collection agency, a missed payment mark will be on your credit report.
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The Bottom Line
Payday loans can be a quick solution when you have unexpected expenses and need money before payday but approach them with caution. Understanding what you’re getting into and all the fees involved is vital. Finding an alternative way to borrow money – installment loans and cash advances – would be a better idea. It could save you a lot of money and a huge headache that tends to come along with payday loans.
