What are payday loans?
Payday loans are short-term loans extended between two payday loans. A payday loan is usually provided for 14 days. The borrower, having accepted the loan terms, gives a check in favor of the lender as security against the loan. At the deadline, the lender deposits this check to recover the loan fees. The deadline is generally the next payday of the borrower. No credit checks are done to grant payday loans. Therefore, the FICO score of the borrower does not matter. It doesn’t matter if the borrower has a bad credit history, or doesn’t have a credit history, or has declared bankruptcy.
Qualifications for payday loans
To qualify for a payday loan, the borrower needs to meet all of the following conditions. There are no exceptions.
o You must be a US citizen.
o You must be at least 18 years old.
o You must be at full-time work now and must attend this work for at least three months.
o You must either have an active checking account or a savings account.
o Your after-tax salary must be at least $ 1,000 or you must have a fixed income of $ 800.
Cost of payday loans
Payday loans carry a very high cost. Generally the loan fees for a $ 100 payday loan are between $ 15 and $ 25. Remember that this fee lasts for 14 days as the loan itself is extended only during these many days. If one considers the cost in terms of annual percentage rate (APR), the average is 391%, which by some standard is excessive. Legally, it is mandatory for the lender to specify the APR to the borrower. Many lenders do compare the cost of a payday loan with other forms of financing; but the common denominator of such a comparison is that they are all very expensive.
When to take advantage of payday loans?
Payday loans should be used only during emergencies. Considering the fact that the cost of repaying a payday loan is very high, it has to be a last resort. If one implements good budgeting techniques and has a good financial plan, the need to borrow through payday loans can be minimized. Furthermore, one must ensure that a payday loan is repaid on time. Payday loans should not be transferred or extended, as in a short time the borrower will find himself in a debt trap where money may have to be borrowed only to repay the interest.
Profile of a payday loan lender
o A typical salaried client is between 25 and 40 years old with an annual income of between $ 25,000 and $ 50,000.
o According to the 2000 U.S. Census Report, the results of the survey of payday loan borrowers are:
22% of respondents have a bachelor’s degree.
51% of respondents have a retirement savings plan.
More than two-thirds of those surveyed have a savings account.
More than two-thirds of respondents have an annual income of at least $ 25,555.
Why are payday loans popular?
They are popular for a number of reasons such as:
o Credit checks are not required. The personal check you pay to the lender acts as security.
o Approval is fast. If all the necessary documents are sent, your loan application may be approved within minutes.
o The papers in question are simple. Generally one or two documents would suffice, which explains the loan process and your duties.
o The repayment process is hassle free. The check sent as security is cashed in the next payday of the lender. You could extend the loan to later payday loans. However this is very expensive.
o Easy availability. Payday loans are particularly suitable for emergency situations as long as the required amount is small and one is willing to endure the high cost of the loan.
Basically, payday loans could be a viable option if you need money and need it quickly. However, you need to be careful who you work with to get your loan. If you don’t need money right away, there’s probably a better solution for you.