What is a payday loan and how does it work?
Payday loans are also referred to as quick cash loans because this type of financing is perfect for those who need immediate financial assistance. Applying for a regular loan can be a challenge. This is particularly true when you have a poor credit history or low credit score.
Application for payday loans can be done online and as soon as the loan has been approved, funds will be sent on the same day through electronic transfer. The amount of loan available can range anywhere from $500 to $1,000, depending on the lending company.
Payday loan lending companies are governed by State laws and the specific rules vary from one State to another.
If you want to get a payday loan, you should check out lending laws that apply to your State and check if the prospective lender is registered within your State. In some US States, payday lending is illegal but residents can still get payday cash advance loans through lenders from other States that offer services online.
Payday loans do not require the submission of collateral so you do not need to use your personal asset to guarantee repayment. However, there is one huge risk associated with payday loans and that is higher interest rates. Lenders that offer online cash advance lending often impose higher interest rates to make up for the risk. The rate of interest can range from 100% to as much as 300% of the loan amount.
Cash advance loans are expected to be paid in full within 30 days or by the next pay check. If the borrower fails to pay the loan on the due date, the interest rate and charges will increase even more. This is risky since a payday loan borrower can be stuck in a serious debt situation as a result of quick debt build-up. For this reason, consumers are advised to weigh the pros and cons carefully, before making a decision to apply for a payday loan.
If you have decided to apply for a payday loan, consider the following reminders:
Check the lending company’s license.
There are lots of illegal lenders in the market so it is very important to do your research to ensure that you are dealing with a legitimate and licensed payday lender.
Check the lending laws.
Read the lending laws applicable to your State or to the State where the lending company is registered and be sure that the lender is in compliance with these laws.
Pay back the loan on time.
If you must take out a cash advance loan, make sure that you will be able to pay back the full amount on or before the due date.