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Common Questions about Payday Loans
Payday loans are a beneficial means in which to get quick cash when your paycheck cant come soon enough.
Most of us have been in a situation where our weekly paycheck didnt last as long as expected. Payday loans are a great way to get extra cash to make ends meet between paychecks. They are, however, often misunderstood.
The following is a list of questions commonly asked regarding payday loans:
Q: What is a payday loan?
A: A payday loan is a short-term loan that is taken out against a future paycheck. In other words, your ability to repay the loan is based on your next paycheck.
A payday loan, which is usually a small loan (less than $1,000), is generally used to cover short-term expenses until the borrowers next payday.
Q: What is the general time period for a payday loan?
A: Most payday loans must be paid within 14 days of the loan, sometimes less, depending on the amount of the payday loan and the company through which you obtain the loan. Payday loan interest is usually calculated every day; therefore, it is in the borrowers best interest to repay the loan as soon as possible.
Q: What are the requirements for a payday loan?
A: Although requirements vary between payday loan companies, most companies require that the borrow be at least 18 years old, have a checking account in good standing, be employed full time, and earn a minimum amount of money each month.
Q: How long does it take to apply for a payday loan?
A: Thanks to the conveniences of the Internet, most payday loan applications can be filled out and sent online in a matter of minutes. Income verification, residency verification and checking account verification can also be completed quickly, thereby enabling loan payments to quickly be issued.
Q: How quickly does it take to get my money from a payday loan?
A: Many payday loan companies can deposit your payday loan money in a matter of hours. Most payday loan companies, however, are typically able to process a payday loan in about one business day. Money from payday loans are received almost immediately after the loan is issued, as most payday lenders use direct deposit into the borrowers active checking or savings account.
Q: Do I need to have good credit to receive a payday loan?
A: Payday loans are generally popular because they enable consumers to receive a short-term loan, regardless of their credit history. Payday loans often come into play when consumers are not able or simply do not want to use credit cards or other types of personal loans.
Q: Why are the fees so high for payday loans?
A: Payday loans have often been portrayed as irresponsible loans. However, when given the cost of bounced check fees, overdraft fees and credit card interest, the fees for payday loans are actually quite reasonable. It is important, however, to always research the payday loan company and their related fees before applying for a payday loan.
Are Payday Loans Good or Bad?
When it comes to Payday Loans there is divided opinion on whether they are a good thing or a bad thing. But why are they perceived by some as a bad way of worrying? To look at this we first need to look at exactly what are Payday Loans?
The clue is in the name. They are a short-term loan designed to paid back on the borrowers next Payday. Therefore, the loan is designed only to be borrowed over a few days or at a maximum of a few weeks.
The key with any borrowing that is taken out is that the borrower is always keen to know the APR. This is understandable and this is why Payday Loans are sometimes criticised. The APR on a Payday Loan is high very high. However, the key with a Payday Loan is remembering that you borrow the loan only over a matter of days. APR stands for Annual Percentage Rate so is therefore a percentage rate over a year. It is therefore deemed a little unfair to judge a payday loan over a year as nobody would borrow the loan over that length of time.
It is common knowledge that if you were to borrow an unsecured loan over a few years you can expect to pay back sometimes double of what you initially borrow especially if the length of time the loan is taken over is a few years. So how does this compare into the Payday Loan world?
It is hard to give a specific figure on the amount of interest you will pay on a payday loan as there are many lenders that have different rates. It would not be unfair to say that you may pay back £30 of interest for every £100 borrowed. So, a £300 loan would cost you a total of £390. This would be at an APR of 2000%+ Sounds high? Well, remember the APR is if the loan was borrowed over a year but you will only borrow it for a few days/ weeks.
On the above Payday Loan model you are paying about 1/3 of the amount borrowed in interest. How would this compare to a £5,000 unsecured loan borrowed over 7 years? A 1/3 more of the amount borrowed would be a total payback of about £6,650. This could be achieved at a monthly payment of around £98. So the APR would be similar as the Payday Loan? No. The APR on this example would be about 12.4%.
I hope the above example highlights the “APR argument” when it comes to Payday Loans. You can pay the same split of interest on a Payday Loan as an Unsecured Loan and the APR is massively different the sole reason for this is that a Payday Loan will only be paid back over a matter of days.
Do Payday Loans deserve their bad reputation? Probably not. If they are used correctly, as a short-term financial product instead of a long-term financial solution, and they are paid back on time then they are an excellent form of short-term borrowing in an emergency.