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Payday Loans for Borrowers with Bad Credit
No doubt you have seen those little establishments lining the
road that promise a quick cash advance so that you can stay
financially afloat until your next pay day. How do payday loans
work? Do they work? Read on to determine whether or not a
payday loan is right for you.
Quick and Easy Approval
Payday loans, also known as cash advance loans or paycheck
advances, are designed for individuals who find themselves in a
bind. Perhaps an unexpected expense arose or a bill was larger
than usual, and you need a small loan to hold you over until you
get your next paycheck. This is the purpose of a payday loan.
You can obtain a payday loan at any of the numerous small
franchise offices that you see, or you can look online.
Eligibility for payday loans is not based on credit checks and
cosigners are not needed, so payday loans are very attractive
options for borrowers who have poor credit.
In addition, this situation cuts down drastically on processing
time and borrowers can get their money very quickly when time is
of the essence. In fact, it oftentimes takes less than one hour
for you to be approved for your payday loan and to have your cash
in hand.
The eligibility requirements are quite simple. Generally, it will
be required that you have an active checking account from which
money can be withdrawn. You also will need some type of income for
which you receive paychecks, and you probably will have to prove
this by providing a pay stub or bank statement for verification.
Along with providing the necessary documentation, you will need to
fill out an application and cut a check to the payday loan
operators.
The Cost of Convenience
The check that you provide will be post-dated to the date at the
end of your loan period, which usually lasts between two to four
weeks.
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The amount of your check will be the full amount of your
loan plus all applicable fees, known as the “finance charge”.
Finance charges are extremely high – they have to be, as these
fees are what keep payday loan companies in business. Fees may be
based on a percentage of the total loan (about 15%), but more
often are based on a fee per certain amount borrowed. For example,
you may be charged $30 for every $100 that you borrow. Payday
loans usually are between $100 and $1500.
Under the Truth in Lending Act, all lenders must provide you with
the APR on your loan and all finance charges in writing. You might
be taken aback to see that the APR on a payday loan can be over
250%!
After the lender has verified your information and has your check,
you will be given your money. When your loan becomes due for
repayment either your check will be cashed or money will be
withdrawn from your account electronically.
The fees that you paid initially cover only a few short weeks of
your loan, so you will have to roll your loan into a new loan if
you are unable to afford repayment when the time comes. Of course,
this means fees added all over again.
Needless to say, getting into this pattern can make your
“small” loan very, very expensive and very, very quickly. In
fact, most borrowers in this situation end up using most of their
loans just to pay back lenders’ fees!
Alternate Options
There are advantages to payday loans that are not seen with other
loans. No other loan can be obtained as quickly or as easily. If
you are in an emergency situation that requires money immediately,
then a payday loan might be your only option. They also can be
useful for individuals with bad credit because no credit checks
are required to determine eligibility.
However, you only should use payday loan services if you truly
have no other options, and if you are absolutely positive that you
will be able to repay your loan and all fees within the initial
loan period. Most people who obtain payday loans cannot afford
them come their next pay period, which can make an already
difficult financial situation much worse.
If you are in a bind and need a small amount of money to bridge
the gap between paychecks, then consider asking a friend or family
member for a loan.
You also might think about obtaining a personal loan from a bank or credit union. An increasing amount of such
loans are being offered without credit checks, though most
probably will require cosigners.
If you have not had any look with other money sources, then check
payday loan companies with the Better Business Bureau before
deciding on your best option. Payday loans can work in theory, but
in reality they often make situations worse for unsuspecting,
unprepared borrowers.
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