Most of us live from one payday to another. At times, a payday may not even be enough to sustain living expenses for the period. This is where payday loans can come to play and help in dealing with finances.
What are payday loans?
These are short-term and high-interest loans. A lender usually gives to a borrower based on the latter’s income. This type of loan is also called a cash advance loan – wherein a part of the principal is usually paid off on the borrower’s next paycheck.
The important things to remember about payday loans include the following:
- Short-term but high interest.
- It is readily available to any employed individual.
- It is computed based on the borrower’s income.
- It does not require any collateral.
How much do payday loans cost?
There is a very minimal amount of interest related to payday loans. For example, a payday loan of $100 may have an interest of around $10-$20. The costly part is the non-payment or late payment, which may incur additional fees aside from the initial interest.
Is it secured?
Payday loans are more accessible to any employed individual. This is because these types of loans are usually unsecured. What does unsecured mean? Unsecured means that the borrower is not required to submit any type of collateral to back up their loan. For example, a bank loan usually requires a property title or even a deed of sale. This will back up the loan in case of non-payment. A lender requires a stable income from an employed individual in payday loans. Then, the lender seeks permission to deduct a certain amount of payment every payday.
Are payments fixed or variable?
Payday loans usually have fixed payment schedules that need to be paid on time. Extra costs may be incurred if payments are not made as prescribed. Charges are usually fixed. In fact, most lenders do not outwardly express the charges involved but just offer a flat fee for the entire loanable amount.
How does it work?
A borrower should submit a pay stub as proof of employment or proof of income. A loan application can now be submitted online, and loan amounts vary. Once approved, the borrower gets cash, which they will need to pay on his next payday. It is important to note that the full borrowed amount is usually due or demandable within two weeks of the borrower’s next payday.
What happens if payment is not received?
If a borrower fails to pay within 2 weeks, the lender can extend or roll over the loan for another 2 weeks. But this means that additional charges may be incurred. Late fees may also be charged if stipulated in the contract upon application.
What are the benefits of payday loans?
There are many reasons to avail of payday loans. Number one on the list would be the ease of application since bank accounts and collateral are not required. It is a great way to have access to cash for short-term expenses that can be paid off by the next payday.