A payday loan is a type of short-term borrowing where a lender will extend high interest credit based on a borrower’s income and credit profile. A payday loan’s principal is typically a portion of a borrower’s next paycheck. These loans charge high interest rates for short-term immediate credit. They are also called cash advance loans or check loans.
How does a payday loan work? When you take out a payday loan, you agree to borrow a certain amount, over a set period of time, usually two weeks or one month. You will pay fees and interest on the loan, and if you don’t repay it in full by the end of the term, you will have to pay even more in fees and interest. If you can’t afford to repay the entire loan when it comes due, you may be able to roll it over into another loan, but this will only add to your costs and may not solve your financial problems.
What are the benefits of a payday loan? The main benefit of taking out a payday loan is that it can provide you with access to cash quickly. This can be helpful in an emergency situation where you need money right away but don’t have the funds available from other sources. Payday loans online can also be helpful if you need to consolidate multiple debts into one payment or if you need to cover an unexpected expense. What are the drawbacks of a payday loan?
What is a Payday Loan?
How Does a Payday Loan Work
A payday loan is a type of short-term borrowing where you borrow against your next paycheck. The loan period is typically two weeks, and the loan amount is based on the amount of your paycheck. Payday loans are typically used to cover unexpected expenses or to tide you over until your next paycheck arrives.
To get a payday loan, you typically write a check for the amount you want to borrow plus a fee for the lender. The lender then gives you the cash and holds onto the check until your next payday, at which time they will cash it. If you don’t have enough money in your account to cover the check, you may be charged additional fees by your bank and the lender.
Payday loans can be helpful in some situations, but they also come with some risks. Before taking out a payday loan, it’s important to understand how they work and what the potential drawbacks are.
How to Get a Payday Loan.
How to Apply for a Payday Loan
Applying for a payday loan is generally a very simple process. Most lenders will require you to fill out an online application, and will ask for some basic information such as your name, address, phone number, Social Security number, and date of birth. In some cases, you may also be asked to provide proof of income or employment.
How to Qualify for a Payday Loan
To qualify for a payday loan, you typically need to have a regular source of income and an active bank account. Some lenders may also require that you have been employed for at least three months or more. In addition, most lenders will only lend up to a certain amount of money based on your income level.
How to Repay a Payday Loan
Repaying a payday loan is usually done by providing the lender with post-dated checks or authorizing the lender to debit your bank account on the due date. In most cases, the loan is due in full on your next payday. However, some lenders may offer extended repayment plans if you are unable to repay the loan in full on time.
Alternatives to Payday Loans.
Personal Loans
Personal loans are a type of unsecured loan offered by banks, credit unions, and online lenders. The interest rate you’ll pay depends on the lender, your creditworthiness, and the size of the loan.
For example, Marcus by Goldman Sachs offers personal loans with APRs ranging from 6.99% to 23.99%. SoFi Personal Loans have APRs that start at 5.99%, while LightStream Personal Loans charge rates as low as 3.49% for borrowers with excellent credit scores.
To qualify for a personal loan, most lenders require that you have good or excellent credit (a FICO score of 670 or higher). You’ll also need to demonstrate proof of income and employment, as well as have a minimum amount of debt relative to your income (known as your debt-to-income ratio).
Credit Cards
If you carry a balance on your credit card each month, you’re likely paying more in interest than you would with a personal loan — although some cards offer introductory 0% APR periods that can last up to 21 months if used responsibly. For example, the Citi Simplicity® Card – No Late Fees Ever offers an intro APR period of 18 months on purchases (then 14.74% – 24.74% Variable), while the Chase Slate® card gives 15 months at 0% APR (then 16.49% – 25.24% Variable). After the intro period ends, both cards revert to standard variable rates on purchases and balance transfers alike: 14.74% – 24.74% Variable for Citi and 16.49% – 25.24% Variable for Chase Slate® respectively .Keep in mind that you’ll need good credit to qualify for these promotional offers — generally 720 or higher on the FICO scale .
Home Equity Loans
If you own a home and have built up equity in it, you may be able to get a loan using your home as collateral. These loans, called home equity loans (or second mortgages), typically offer lower interest rates than credit cards or personal loans because the lender uses your home’s value to offset some of the risk.
For example, let’s say you have a $250,000 house and owe $150,000 on your mortgage. You would have $100,000 in equity, which is the portion of your home’s value that you own outright. You could then take out a home equity loan for $25,000. Because the loan is secured by your home’s value, the interest rate would likely be lower than what you’d pay on a personal loan or credit card .
Also read: How to get a no credit check loan
Conclusion
A payday loan online can be a great option if you need cash fast and don’t have any other options. However, there are some things you should know before you apply for a payday loan. Make sure you understand how they work, the benefits and drawbacks, and how to qualify and repay them. Alternatives to payday loans include personal loans, credit cards, and home equity loans.