Before you apply for payday loans, you must understand how they work. That’s way, there are no surprises when the bill comes due. This article will explain how payday loans work and what to do if things go wrong.
What Are Payday Loans?
A payday loan is a small “short-term” cash advance that lets you borrow money when your next paycheck is still weeks or months away.
In exchange for their time and trouble, lenders charge borrowers an extremely high-interest rate on loans. Also, because payday loans are for tiny amounts of money (usually up to about $300), lenders charge a fee for each transaction–which can be as much as 20% or more of your borrowed amount.
As you might guess, given the interest rate on payday loans and the high fees they charge, it isn’t long before you start owing far more than you borrowed.
A payday loan will usually be due in full on your next payday. At that time, you are expected to pay back the entire amount of money initially loaned to you, plus any interest and fees that have accrued over your repayment period.
If you don’t pay back the loan on time, the fees and interest will continue to build up until you finally pay it off. Yes, payday loans can get very expensive!
Why Are They Controversial?
Payday lending exploded in popularity during the 1990s because of changes made by the federal government.
Small loans to low-income individuals, and in 1981 the Depository Institutions Deregulation and Monetary Control Act changed federal guidelines to charge higher interest rates on small loans.
These changes helped set the stage for payday lending. In 1994, the National Consumer Law Center called payday lending “the most abusive form of credit in existence.
According to the Consumer Financial Protection Bureau, “high-cost loans are small loans with terms that fall outside the mainstream. They typically feature higher than typical annual percentage rates (APRs), application fees, due dates and loan limits than traditional consumer credit products. These products may be marketed as a way to bridge a cash flow gap or short-term emergency expense.”
Who Can Apply For Payday Loans?
Unfortunately, payday loans are out of reach for many people who need them. If you don’t have a checking account, the lender will require that you set up a prepaid debit card or some other means of electronic payment.
This makes it impossible for low-income people who don’t have to check accounts to borrow money in this manner because they can’t prove that they have the financial resources available to them at the time when they need it. That eliminates about 27 million Americans from even being eligible to apply for a payday loan.
How Much Can You Borrow?
You must check with your state’s financial services department before applying for a payday loan. Also, some states have their version of the Community Reinvestment Act, so you’ll want to. If there are any restrictions on who can apply for a payday loan and how much they’re allowed to borrow.
What Are The Requirements?
1. You must be at least 18 years old.
2. You must have a monthly source of income. This can come from wages, unemployment benefits, social security payments or some other source. If you don’t have income, then payday loans are probably not for you.
3. You must have a checking account.
4. The maximum amount of money you can borrow is typically limited to about one-fourth of your monthly gross income.
5. Your payday loan must be repaid within 30 days of the date that you applied for it.
Benefits Of Payday Loans?
Many people have been in a situation where they needed money but didn’t have the cash from their savings account. They may have had to miss payments on their rent or other bills to keep up with additional expenses.
A payday loan can solve this problem because they are typically repaid within 30 days.
To be eligible for a payday loan, you would need to have an active bank account, be at least 18 years old, have an income stream, and you’d need to be employed.
With the economy in a state of redshift and many people out of work, it’s essential to provide for your family. One way that you might do this is by borrowing money from a payday lender.