Payday loans are an effective loan solution for individuals who need money quickly for a short period of time. Understanding how they work is key to ensuring that the service is mutually beneficial for the lender and the borrower.
Below are seven guidelines to familiarize about how payday loans work:
1. When to borrow payday loans
It’s important to know when do you really need to borrow payday loans. A payday loan is not ideal for all situations. You should seek out a payday loan when you have an unexpected payment that needs to be made right away, or if you are short on your bills before your next payday.
You can use payday loans to avoid insufficient fund charges on automatic payments and cheques, or to pay for events and parties, like weddings – things that don’t come up often, but that need to be paid now.
2. When not to borrow payday loans
A payday loan company is not going to be the place to go if you have lost your job and are short on rent this month. It isn’t a good idea to seek out payday loans if you have a lot of debt, and are trying to find a way to make your payments. This will only add to your debt, and it is higher interest than other potential options.
3. What you pay
If you decide that a payday loan is the right option for you, then you’ll need to understand what your repayment fees will look like. Each company has a set rate that they charge for borrowing money. For some, it is a flat dollar amount depending on how much you borrow.
Other payday loans work based on a formula, which is measured on the amount of time you are borrowing the money for and the sum that you borrowed. You will receive your loan up front, but when you pay it back you need to pay back the loan plus the fees.
4. When you pay back the loan
You can pay back your loan in installments or all at once, but the most important thing is that you pay it back by the date indicated on your agreement with the lender. If you are consistently making payments on the loan, but have not paid the loan off completely by that date, the company will not send you to collections immediately.
Instead, they will apply additional interest to the remainder of your loan, until you can pay it off in full. Interest can be higher than 30 per cent on these loans, so try to avoid this situation if possible.
5. How to get the loan
Acquiring the loan is quite simple. Fill out the form online or in the shop, ensuring that you answer all questions as truthfully as possible. Submit the application with any other required documents. Payday loan companies sometimes require additional documentation to prove your identity, your short-term loan standing, or your character. Read application instructions carefully to ensure you have completed all steps before submitting your final application.
6. Deposit contingent on approval
There is nothing for you to do after submitting your application, other than wait. Most companies recommend waiting at least two days before following up on the application. However you will often receive approval, and your money, as quickly as one day after your submission.
7. Your money
The money you receive comes directly into your account through direct deposit, and is not monitored by the lender or by any other party. Some borrowers believe they have to spend that money a certain way, or that they only have access to the funds for a certain amount of time. This is not true. Payday loans are a cash advance, which means the money acts like money you would receive from any other source.