When You Should Consider a Payday Loan
A Payday loan is also commonly known as a ‘cash advance’, and is an unsecured, short-term loan. These loans are becoming increasingly popular, with both online and high street stores offering them alongside their other financial products such as credit cards and personal loans.
This loan works in largely the same way as an unsecured personal loan, with the main differences being that the amount is usually smaller, and the money has to be paid back within a shorter period of time, usually on the customers next payday or a maximum of 30 days later.
Customers will often take out a payday loan to cover small, unexpected expenses such as medical bills or to buy general everyday items when they have gone over their budget for the month. Borrowing this amount of money may then help prevent expensive late payment and over-limit fees that they may otherwise have incurred.
The actual amount of money available varies from provider to provider, but will typically range from $100 to $1500. No credit check is carried out, meaning even if a customer has previously filed for bankruptcy, missed personal loan or card payments or experienced other problems it will not stop them being accepted for this type of loan.
There are however certain minimum requirements. The applicant must be a minimum of 18 years old, a current citizen of the US with a social security number and have their own checking account. It is also a requirement that the person has a job and earns above a specified amount every month – usually $1,000.
Once the application process has been completed and identification verified the payday loan will be deposited electronically into the applicant’s checking account. The whole process can be completed in less than an hour, depending on the company.
Repayment then has to be made on or by the due date, which is usually the date of the customers’ next payday (as shown on their wage slip). The customer will have to repay the loan amount, as well as an amount of interest.
At first glance this amount of interest often seems low, for example $9 interest may be charged on a $100 loan. But when worked out as an annual percentage rate (APR) figure the interest can be extremely high. For this reason this type of loan is only recommended as a short-term solution.
A payday loan is not designed to be extended and continued for more than one month, as it can turn out to be an extremely poor financial option when used in this way. Those seeking a long-term financial answer should consider an unsecured personal loan, as this will work out as more cost effective when repaid over a period of several months or years.
Regardless, a payday loan can be recommended as a short-term option, and is a much better option than getting hit with missed / late payment fees, over-limit charges and the reduction in credit rating that might occur from this.
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