There are times when you face a financial crunch and need some money immediately. Now, if you don’t qualify for a personal loan, what option do you have? The answer is a payday loan. It is a small, short-term loan that you’ll have to repay when you get your next pay. You can typically pay it back two to four weeks after you’ve received the loan amount.
The amount of such loans is small, usually around $500. You don’t need to go through a credit check for payday loans. These loans might be easier for many individuals to get. However, they can prove costly and harmful long after you’ve borrowed them.
Dangers of payday loans
Under certain circumstances, some people might urgently need funds. Those among them who don’t have a good credit history can’t get the required amount from banks. Neither can they get the funds from online lenders and credit unions? This makes them the most vulnerable group for the lenders of payday loans to prey upon.
Such lenders send the funds you need immediately into your bank account. This is done without any credit check. Many of the borrowers go for payday loans even if they don’t require many funds. Predatory lenders are always looking out for such individuals. Their activities have caused so much concern that some states in the US don’t allow payday loans.
Most of the states in the country have regulations in place for payday loans. These regulations apply to repayment terms, the loan amount, and finance charges. Even with such regulations, interest rates go up to 400%. On the other hand, the interest rates on personal loans can be 36%. This is in the case of borrowers with a limited credit history or extremely low credit scores.
The dangers of payday loans lie in their repayment period. Traditionally, personal loans have always allowed borrowers to repay the loan over a longer period. Payday loans require borrowers to pay the amount of the loan back within 14 to 31 days.
Many borrowers don’t find the funds to pay back the loan within such a short period. They, therefore, end up borrowing more to repay their payday loans.
How payday loans work
You can either take out payday loans at an in-person location or online. For this, your state must allow payday loans. Many of the lenders of payday loans don’t ask for a credit check. Borrowers who have a bad credit history or no credit history can be easily enticed by this. Once you’re done applying for the loan, you need to write a post-dated check.
The amount of the check includes the loan amount, interest, and fees. If you can’t afford to repay by the due date, some lenders can give you options. Either they can renew or extend the due date by rolling over your plan. This attracts additional interest and fees.
The last option when in need
Payday loans are a way of getting money in your hands until you get your next paycheck. Although it is considered quite risky, it can be the only alternative when all other options don’t work out. You can try getting personal loans or borrowing money from your close friends or family members. However, if you’re still not able to gather the amount, it is the last option you have.