A payday loan is a quick cash advance given to a customer to help them meet some basic or urgent needs while awaiting their next paycheck. The loans are also referred to as post-dated check loans, deferred deposit loans, and check advance loans.
Payday loans are very easy to qualify for, making them very enticing to consumers. They also typically get approved within minutes. However, as we are going to learn, the loans come with several risks and unpleasant terms. For one, they have high-interest rates, which many would argue are not worth the convenience you get from the quick money.
Payday Loan Requirements
One qualifies for a payday loan if:
● You are at least 18 years of age and have a valid identification document
● You can provide verification or proof of income
● You have an active prepaid card, credit union, or bank account
As you can see, it’s pretty easy to qualify for a check advance loan. You will receive the loan with no credit check in as little as 15 minutes. Your credit score does not affect your eligibility for the loan however poor it may be.
Check advance loans are usually extended for only a few weeks. In most cases, the lender will ask you to write a post-dated check with the loan amount and fees. They’ll then hold on to the check until an agreed-upon date.
On the due date, the lender will have the option of cashing the check or withdrawing the funds from your account. You can also pay off the loan yourself.
How Much Money Can One Borrow From Payday Loans?
The average cash advance loan is roughly $350 extended for a two-week term. However, borrowers can qualify for anything between $50 and $1000. The exact amount you’ll be eligible for will depend on the lender you are borrowing from and your income.
State laws also regulate the amount of money you can borrow from payday loans. Some even limit borrowers from taking multiple loans from different lenders. This is done to protect consumers against the insanely high cost of post-dated check loans.
The Risks Of Payday Loans
The interest rates of check advance loans can hit 1000% if you do not pay the loans by the due date. Lenders are usually glad to roll over the loan for extra charges. Therefore, while you may start with a $100 loan with a lender’s fee of around $10 to $30, you could end up paying more than $1000.
The worst part is that payday loans are usually the only accessible option for people with income problems and poor credit. As such, the likelihood of such borrowers repaying the loans on time is typically low. Most of them resort to loan extensions, and that’s how the debt starts ballooning.
Payday Loan Alternatives
It’s imperative that you consider several options before applying for a payday loan. Here are some of the alternatives you may qualify for:
● Installment Loans
Auto and student loans are good examples of installment loans. The borrower usually receives the money they need and repays it in small installments over a given period of time. Although installment loans carry their own risks, they’re generally safer than payday loans since the required monthly installments are predictable. They are also less expensive.
● Use Credit Card
A credit card is another cheaper option. The interest rate is usually low, plus you’ll have 30 days to repay the loan, unlike the unsettling 2-week term of cash advance loans. Sadly, a credit card can only help you if it’s not maxed out. Also, if you don’t have a credit card, then this is not an option at all.
● Credit Union
Credit Unions extend payday alternative loans with APR capped at 28%. Members can borrow $200 to $1000 for a reasonable term of between 1 and 6 months. The downside is you must be a member of the union for at least one month to qualify for the loan.
● Consider A Personal Loan
Some lenders offer personal loans to individuals with bad credits. You could qualify for a loan of up to $2000 with an APR of between 9.95% and 35.99%.
● Talk To Family And Friends
There’s really no point in taking on an expensive loan if a friend or family member is in a position to help. Give them a call and see if they can assist before applying for the loan. Payday loans are a quick fix to a financial problem, but the risks involved are high. The lenders charge exorbitant fees that can accumulate over time, trapping you in a never-ending cycle of debt. Although some states have set up laws to protect consumers, lenders still find a way to navigate the regulations. That’s why it’s ultimately upon you to consider your options carefully before settling for a cash advance loan.