What you should know before applying for a payday loan?
Payday loans are short term loans that are structured in a specific way to assist people regarding their immediate cash needs before their next paycheck. The average time in which you have to repay these loans is about two weeks or near your next paycheck date. These loans could be considered as small-amount high-cost loans which means the amount of money that you are going to get a loan is not that high but the amount of cost that you will end up bearing while repaying the loan is way higher.
We can safely say that payday loans are not for people that are faint hearted as repaying them can be a stressful process. The entire stress related to repayment is directly linked to the increased amount of interest that you will have to pay on these types of loans. The normal rate that they will charge on the payments is usually triple APR Average Percentage Rates, which is compounded as you default on your repayment date.
So now that we have got that covered, we can say that it is important to understand how these loans function before taking such a loan.
How do payday loans work?
The overall functionality of this type of short term loan is highly different from other types of personal or consumer loans. Based on your location, you can easily get a payday loan online or through a physical branch that provides such loans. The laws regarding these payday loans can differ from one state to another and this also applies to the fees and interest limits that lenders can charge in different states.
The practical trend is getting a payday loan is not that difficult and almost anyone with a stable income can apply for a loan and get that because let’s be honest the real winners in this structure are the lenders. The finance charge that is included in those payday loans is highly dependent on your loan amount and these are fairly high.
Despite all of these negative implications, a study shows that roughly 2.5 million American households take payday loans every year. One might wonder, what is the actual reason for this popularity despite all of these negative effects, the truth is the only reason that people are taking these loans over some other kind of advances is that most people are not qualified to take other loans but those same people who have almost Nil to a very poor credit score can easily get a payday loan. So, they do not have any other option left with them.
What is the maximum limit of borrowing under payday loans?
The actual limit for borrowing as a payday loan is completely dependent on your state laws. On average people make $350 on a 2-week term. But this is just an average and the actual loan amount can range from $50 to $1000.
How to repay a payday loan?
Generally speaking, most payday loans are required to be repaid in the form of a single payment when your next payday arrives but as we have mentioned multiple times in this article, the actual laws regarding all of these factors are highly different from one state to another and you must refer them for direct reference. Generally, a lender will provide you with the following options to pay off debt:
- Direct debit from your bank account
- On online basis through the lender’s website
- check on your next payday
- a post-dated cheque when you apply for the loan
- another form of credit
If you for some reason default on repaying the loan when it is due to the lender, he has the right to withdraw the money electronically from your account but it has been the trend that many people default on their due dates that increases their overall debt on a compound basis.
What is the meaning of a rollover loan?
Rollover loan is basically just the extension of the debt that was initially taken as a payday loan. If such a loan is permitted by your state, you can simply extend your loan balance before the due date or can simply renew your existing loan again. This means if for some reason you are sure that you will not be able to repay the loan in time you can avoid penalties for missing the due date but this also comes with additional cost on its own.
Importance of a licensed payday lender
Before borrowing money from a payday lender in your state you must make sure that the payday lender is licensed under your State Law as not all states allow payday lending and the people that actually do lend money require a specific license. If the license is not there the entire loan is considered void which means none of the two parties are required to fulfill their duties.