Payday loans are considered a stress-free but expensive solution for people with bad credit who need money immediately. You can easily get a payday loan online and avoid all the hassle of a traditional bank application process. But those who used to take out loans from conventional lenders only may be wary of them. This is because they don’t understand how payday loans work.
Although payday loans differ from traditional financial products, they could prove useful for those who are cautious with them. If you want to learn more about a same-day form of aid and explore how to apply for payday loan options, spend a few minutes reading this article.
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What Are Payday Loans?
Payday loans are also called cash advance loans. This is because they are aimed at providing borrowers with small cash advances till their next paycheck. Thus, online payday loans are a type of short-term aid that allows borrowers to receive up to $1,000 quickly. These loans are popular with people who need a few hundred dollars to cover emergency expenses but can’t get the funds from traditional loan providers.
Most payday lenders are indifferent to borrowers’ credit scores. They are more focused on applicants’ income and pay special attention to their ability to return the funds. That is why they don’t run hard credit checks through major credit bureaus. This is also the reason why payday loans have a faster process compared to personal loans. You can typically get a payday loan in as little as one business day.
What Do I Need for a Payday Loan?
A payday loan is a form of debt that doesn’t require much paperwork to apply. But before you apply, make sure you meet all the specific criteria a loan provider has. First, a payday lender will need the following documents:
- Proof of identification (a government-issued ID or driver’s license);
- Proof of income (pay stubs or bank statements);
- Personal and bank information, including your Social Security Number and bank account details.
Second, a lender will ask you to meet a few payday loans’ requirements, such as:
- Reach the age of majority;
- Have a valid bank account;
- Have a stable source of income.
How to Get a Payday Loan?
Payday lenders typically strive to simplify the whole process to make their loans meet customers’ needs and expectations. Let’s take a closer look at an example. Suppose that you’re going to get a $200 loan with instant approval at 15M Finance. As the company works with multiple direct lenders, you can access plenty of offers by filling out a simple form on its website. Here is a step-by-step instruction on what you should do after you enter the website:
- Decide on a loan amount. When it comes to short-term loans, you need to keep in mind that your debt payment obligations must be fulfilled in one lump sum, with the due date by your next paycheck. Thus, make sure you can afford the amount you’re going to request. $200 seems a good sum to get started.
- Apply for a loan. To do this, go to the application section and complete a simple loan request form.
- Get a guaranteed loan approval decision. As a payday loan lender doesn’t conduct a hard credit check, it takes you a few minutes to get a response by email.
- Accept an offer. If you get a positive loan decision, review your loan agreement carefully and make sure you understand your loan conditions. Pay special attention to interest rates, fees, and repayment terms. If everything is good, e-sign your loan documents.
- Receive funds. The lender will make a direct deposit to your active checking account as soon as the next working day.
- Make repayment. Once a pay date comes, make sure you have enough cash in your bank account to cover your debt.
What Are Payday Loan Interest Rates?
A typical payday loan has a high interest rate. An average cost is between $10 and $30 per each $100 you owe. Payday lenders offer options with above-average rates not because they want to take advantage of you. Lending money to people with poor credit comes with the risk of losing the funds. By setting higher interest rates, lenders offset the difference that can be caused by non-payment.
Drawbacks of Online Payday Loans
Before you take out a payday loan, you need not only to estimate its pros but also be aware of its cons. Although payday loan options may seem attractive due to their convenience and accessibility, they also have several shades.
One of the primary disadvantages of online payday loans is their high interest rates. Most payday loans have an annual percentage rate that exceeds 400%. This is added to limited loan terms that are usually just a few weeks long. Because of this, borrowers may find themselves unable to properly manage their debt.
If you fail to repay your loan when due, a lender may impose additional fees and penalties. These charges will be added to your current loan cost and will make it jump up. You can also be offered to start a rollover that extends your loan term and gives you more time to repay the money. But rollovers also come with additional fees. Thus, you can end up with amounts of debt that you can’t afford.
Another issue with online payday loans is that they are usually targeted at vulnerable people who are already in a difficult financial situation. Borrowers who are struggling to make ends meet may find themselves trapped in a cycle of debt. This means that they will keep taking out new loans to cover previous ones.
Finally, online payday lenders are not as regulated as traditional ones. Thus, payday lending comes with a higher risk of running into scammers. Some lenders may engage in predatory lending practices, such as charging exorbitant fees or misleading borrowers about the real loan conditions.
Key Takeaways
A payday loan is a short-term loan that is known for being easy to get. At the same time, you still need to meet a few requirements and be aware of payday loan drawbacks to avoid getting into financial trouble. Keep in mind that payday cash advances are expensive and should be considered with caution.
