With the growing number of online lending services and people seeking out for quick and short-term loans, comes the rising number of borrowers opting for out-of-the-bank loans that are easy to apply for.
However, these loans may come with a hefty consequence if the borrower isn’t disciplined to pay back what they owe at the agreed time. If you’re looking for which type of loan you should apply for this time of need, consider payday loans. Not familiar with it? Read further down.
What exactly is payday loans?
Payday loans are also called short-term loans. From that alone, it offers loan solutions with swift and easy processing to people who greatly need quick cash at short times, for instance, car repair and maintenance, grocery money, gas, bills payments, and the likes.
When should you allow yourself to apply for one? If and only if you have no other borrowing options; and you’re only short of 2 weeks away from your next payday. If in this time window and your options have gone south, and you really need some cash for gas or unexpected expenses, you may resort to payday loans.
How does it work?
Go to a reliable and credible payday lender and apply for a loan. There will be an establishment fee depending on the amount you’ll be borrowing (usually $200 up to $1200). Once financing fee is paid upon, you get your borrowed amount of money. You have two weeks, some lenders allow up to 61 days, to make repayments.
If you know you can repay the amount you owe; and there’s really no other option but to apply for a payday loan, by all means, apply for one so long as you’re responsible enough to avoid further money damage if you don’t pay on time.
What are the requirements?
As mentioned earlier, the process is easy. Anyone with good credit standing and bank account, valid identification, and a regular source of income can apply.
Payday lenders will ask you to establish a continuous payment authority. This enables them to deduct the amount you owe directly from your account according to your repayment date. This means, if your account does not have enough balance to repay the loan, you will miss a bill payment and will be charged with late fees.
What happens when I can’t repay the loan?
Defaulting on a loan or missing payments will turn the amount of your borrowed money to double- or even triple digits in interest rates. This will lead you to a cycle of debt you’ll have a hard time getting out of due to the piling of interest fees.
Will an unpaid payday loan damage your credit? It definitely will. Once your debt collector reports and sells your debt to a collections agency, that unpaid loan will reflect on the system of credit reporting agencies. Hence, it will lower your credit score and appear as a negative entry in your file.
Before getting a payday loan
Now that you know how payday loans work and the consequences when you skip payments, it’s time to educate yourself on things to remember before you get a payday loan.
The general rule is: before even thinking about getting a payday loan, you need to already know how you’ll pay it back and whether or not you can repay it on time. Why? Because if you don’t think this through, you might only end up with heavier money issues and fall down the debt hole.
With regards to the lending services, check if the lender is regulated by the country’s financial authority. Read reviews telling about their services and ask for recommendations from friends and family members.
Would you consider applying for a payday loan at a time in need?
About Chie Suarez
Chie Suarez has spent time figuring out ways on saving money and stepping away from her go-to retail stores. She then became a writer for Speedy Money which offers hassle-free loans services.