What are Payday Loans and How Do They Work?

With the increasing demand of consumers, even the finance industry has come up with some interesting products. And one such is payday loans. As the name suggests, they are short-term loans to cover immediate cash requirements till the time you get your next paycheck. These small loans have a very high rate of interest. The repayment has to be done within two weeks or close to your payday. With payday loans you need to be careful otherwise, they will cost you more than you expect if you are not careful. Let us know more about Payday Loans. 

How do payday loans work?

Payday loans are structured in a different way compared to personal loans or other consumer loans. Depending on your place of residence the loan can be received online or through a physical branch with a payday lender. The laws concerned with payday loans are different in different states of the country. There are limits on the amount you can borrow, interest, and fees. On the other hand, some states have prohibited payday loans altogether. 

Bear in mind that you should make your calculations carefully when you apply for a payday loan. Make sure to repay the loan on your next payday or after 14 days as mentioned in the terms and conditions. After 14 days of the loan transfer to you in cash or check or directly in your account, you will be expected to pay the loan as well as the finance charges. 

Payday loans have a finance charge attached to them which is based on the loan amount. The finance charges on payday loans are pretty high because of the short-term nature of the loan. According to many finance bodies, the APR on payday loans is around 400% or more. 

The popularity of payday loans in spite of the high cost

Some people have poor credit and cannot apply for a personal or any other kind of loan that depends on credit score. This is the reason that in the USA 2.5 million Americans take payday loans every year. As mentioned there are some reasons for this popularity. Apart from poor credit scores, they may also have inhibitions in asking friends or family for a loan. This is the reason that they have to rely on payday loans, however, expensive they may be. 

The other reason that people resort to payday loans is that they are easy to get. The lenders don’t check even the credit score and the only things you need are identification proof, a well-maintained bank account, and a stable source of income. Keep in mind that if you are unable to repay the loan, your credit score will become worse. This is why make sure to only take the amount you can comfortably repay on time.

Payday loans for business

Sometimes a company may need immediate funding for the short term. In this case, they can opt for a payday loan for business. If you have a small business you can apply for a business payday loan and get the funds within a few hours. The documentation for a business payday loan is also straightforward, and hence there is not much red tape that takes up time in other forms of loans. It may take a couple of days for the lender to transfer money to your account, if not on the same day. 

How to repay payday loans

Usually, you have to repay the loan in a single lump sum on your next payday. All lenders have different repayment terms, so you should be sure that you ask for a specific date of repayment. According to the lender’s terms, you may have to provide the lender a post-dated check when you apply. You can also make payment by check or cash on your next payday. The payment can also be made online through the lender’s website. The amount can be directly debited to your bank account. You can opt for any other form of credit.

Hence payday loans are a boon if you handle them properly. However, if you are careless with the loan repayment, then you can end up in serious trouble. It is always better to know more about Payday Loans so that you do not fall into a trap. And in case you want to share more info then do comment below!!