Understanding Payday Loans
Payday loans are small amounts of money you may borrow at a higher rate of interest (compared to other loans); this deal is based on the agreement you as a borrower will repay the amount once you receive your next paycheck – hence, its name.
The payday loan industry, as of 2016, has become a $38 billion market according to a report by the Wall Street Journal.
Payday Loans in a Nutshell
Usually, payday loans are short-term and high-cost loans, often amounting to a maximum of $500, and it’s normally due by the borrower’s next payday. However, state laws differ, and some payday loans are available only in person, while others allow online lending.
In situations when a person has a dire need for cash quickly, especially at a time when they are maxed out on their credit cards, direct lender payday loans can be of help. Also known sometimes as a cash advance or check loan, these types of loans can help tide a person over until their next pay day, as long as they have the intention of paying it off with a future pay check.
Benefits of Online Payday Loans
Instant payday loans have a number of benefits, which may vary depending on each person’s situation as well as from which lender they are borrowing. Some of the most common benefits are:
- Easy, safe payday loan online application
- Quick approval
- Cash deposited to borrower’s account within 24 hours
- No hidden fees – all fees are told upfront
- No credit check for most lenders
- Great rates
Common Payday Loan Requirements
Again, payday loans differ by state. However, there are a few common factors that may be discussed in general for requirements:
- An open bank account in relatively good standing
- A steady source of income
- A proof of identification, one that shows the borrower is at least 18 years of age
- Personal details, including the borrower’s full name, address, and Social Security Number
Payday loan landers do not conduct a full credit check, nor do they ask anything that would be a determining factor for whether a borrower can afford paying the loan back. People with bad credit, and who have difficulty applying for other loans and credit cards, may apply and will most likely get approved.
Qualification by State
Depending on the state where you live, payday loans vary in restriction. There are six states that have no cash advance interest ceiling; inversely, there are 12 states where payday loans are completely prohibited. In fact, in some states, there are no payday lending businesses either because such loans are illegal, or the state has high interest rates and fees permitted.
Most states have payday loan laws of their own which limit loan usage and certain lender practices. Most of these limitations are focused on the amount of fees and interest lenders charge their borrowers, as well as limits to the amount of times a borrower may roll their financing over (a rollover payday loan is a new loan that covers the cost of the previous loan, including its fee and principal). However, there are only a few states that actually allow rollovers, mostly only just once, although there are a few states that allow up to two, three, four, and even six rollovers, with conditions.
On the more positive end of the spectrum are the states which do not limit your payday loan fees or interest, namely:
- South Dakota
On the opposite end of the payday lending spectrum, these payday loans are illegal in these 12 states, including online lenders – they are not allowed to offer short time financing opportunities to residents of these locations:
- New Jersey
- New York
- North Carolina
- West Virginia
Common Payday Loan Features
Payday loans online and those done in a physical office (“storefront payday lenders”) often do not differ except in the nature of how it was taken out. So how do payday loans work? While this may vary per lender and from state-to-state, bad credit payday loans generally are short-term, high cost loans, usually for amounts of $500 or even less. Some states can allow loans up to $1000, and the average loan term is 14 days. Here are other common features of instant payday loans:
- An easy payday loan is usually repaid through a single payment charged on the borrower’s next payday. Alternately, it can be paid when income is received through other sources like Social Security or pension. As such, a fast payday loan is due typically between two to four weeks from the date the loan was taken out. However, the specific due date is written on the payday loan agreement.
- In same day payday loans, funds are usually provided to the borrower through either cash or check, deposited into their account, or even loaded into a prepaid debit card.
- To repay payday loans for bad credit, a borrower writes a post-dated check for the full balance. This amount includes any fees as well. Borrowers may also provide the lender an authorization to debit funds electronically from the bank, prepaid card account, or credit union. Should the borrower fail to repay the payday loan online or in person, the lender can cash the check or withdraw money electronically from the borrower’s account.
- A borrower’s ability to repay the loan while meeting other financial issues and obligations is usually not considered by payday loan lenders.
On top of these, other same day payday loans have features that vary. For example, some bad credit payday loans may be structured as something that should be paid off in one lump sum. In some states, they permit lenders to renew a loan or roll it over when it’s due; in such cases, the borrower pays only the fees due, and then the lender extends the payday loan’s due date. There are other cases when payday loans are structured so a borrower may repay in installments over a longer period of time, such as 3 month payday loans.
How Much Do Payday Loans Cost?
The cost of a payday loan varies per state. Many state laws regulate the maximum amount and fees, such as somewhere between $10 to $30 for every borrowed $100 succession. There are many states which cap the cost of the loan, including the maximum loan amount and its fees.
Compared to credit cards, on which the annual percentage rate (APR) ranges from 12 to 30 percent, a typical payday loan (a $15 fee per $100) equates to an APR of nearly 400 percent.
Military Payday Loan Protections
For many reasons, payday lending is quite popular among military personnel. For one, living on base can get quite challenging. However, because of the federal Military Lending Act (MLA), people on active duty as well as their dependents have special protections, such as a 36 percent cap on the Military Annual Percentage Rate (MAPR). Other special protections include limits on what payday loan lenders can charge, as well as limits on other consumer loans. Your local Judge Advocate General (JAG) can provide information.
What Do Borrowers Pay Upfront?
Most payday loans come with a fixed fee when a borrower takes out a loan. As previously mentioned, there is usually a $10 to $30 fee for every $100 borrowed. For example, a borrower takes a $400 loan, and the lender charges $20 for each $100 – this becomes an $80 charge, an interest rate of 520 percent.
How Payday Loan Online Interest Builds
When taking out a payday loan, the usual idea is to use it for a week or two, just to make ends meet. However, there are times when borrowers fail to pay back the loan on time, and this turns into a rollover of the loan. As people do this, sometimes they completely fail to pay the amount back properly and on time, mainly because costs become steep. When a payday loan is rolled over, the original interest multiplies.
Payday loans are great for emergencies and situations where there is no other option but to quickly take out a loan. However, proceed with caution – there are fees for returned checks if the borrower’s post-dated check bounces. In addition, borrowers should make sure the bank account has sufficient funds by the agreed upon pay date – else, there will be an overdraft or insufficient fund fee from both the bank and the lender.
Are Online Payday Loans Safe?
One of the first things a person thinks about when borrowing money is how safe it is to do so. Generally speaking, payday loans are safe. A sure bet is going to the bank to take out a payday loan, but there will be times it may be a challenge to do this. Not everyone is entitled to a bank loan, and sometimes even those who are eligible need to wait for a few days or even weeks for an approval and for the money to go through.
Due to these factors, hundreds of people turn to payday loans online, same day loans that are easy to get and relatively easy to pay back.
No Bad Credit Barriers
In majority of payday loan landers, there is no need to check a borrower’s credit history as part of the application. This makes it a great way to get emergency cash within 24 hours, without the fear of rejection from banks and other financial institutions.
As payday loans are short-term commitments, all the lenders want to know is that you have a steady flow of money coming in, enough that you are able to repay what you borrowed (the principal plus other fees and charges you agreed upon).
How much you earn is the main factor for a lender to approve you as a borrower. Depending on which state you live, there may be a limit to the amount you are allowed to borrow based on the income you earn. As such, credit rating does not matter in this case.
The only time there is an exception, which is very rare, is when information a borrower enters does not add up or seems to have several irregularities. Because information does not check out, payday lenders may look up the borrower’s credit report, as one of the ways to verify their identity and see if that person has a history of fraud.
Getting an Instant Payday Loan Request Approved
Payday loans, unlike regular bank loans, receive approval in a matter of a few hours. Borrowers receive their funds within the same day, usually deposited to a bank account they provide. Most of the time USA payday loans are approved, although these high approval rates do not always point to certainty – some requests are actually turned down.
For potential borrowers of easy payday loans, here are a few tips that may increase the chances of approval:
- Report Income Correctly
As previously mentioned, lenders of quick payday loans focus on the ability of a potential borrower to pay back the amount they borrow. The usual loan amount is $1,000 a month for a person with a steady job, and some lenders may require a minimum monthly income as well as having worked at the same job for a minimum of three months.
Whatever the case, report your monthly income accurately. Never try to exaggerate your monthly income, nor add that you do freelance work just so you can inflate your monthly income numbers. Most direct payday loan lenders only care about how much you make from a permanent job, and money from part time or freelancing work points to unsteady incomes.
- Remember to Consider Debt-to-Income Ratio
In requesting a loan, a potential borrower should consider the debt-to-income ratio, or comparing the amount requested versus the monthly income. For example, if a person’s monthly income is $1,000, then a payday loan of $1,000 will not be approved. The chances you get of getting a loan approval is better if you request a reasonable fraction of your monthly income. In the example of a $1,000 income, borrowing around $300 and paying it back by the next payday is reasonable and believable. The lower the amount to be borrowed, the better chances of receiving easy payday loans approval.
- Have a Good Credit Score
Payday loans may or may not check your credit score, as previously mentioned. Regardless, it is still always a better chance for someone to receive the best online payday loans when their credit score is quite good. Credit scores above 770 are optimal, while around 700 is considered good. However, scores of 640 or lower are quite fair, while scores of 500 or lower are bad credit.
- Submit Required Documents on Time
Payday installment loans work best when you submit any required documentation on time – else, the loan approval process may end up delayed, or even halted altogether. Lenders in general, and not just online payday loan lenders, like when a borrower is easy to work with. As such, if they request any additional documents, make sure to provide it on time. When applying for any loan, read the application carefully, inspecting all the requirements and making sure you have attached everything they need before you submit.
- Never Lie On the Application
It should go without saying, but never lie on your quick payday loans applications. Lenders always check information – guaranteed payday loans only go to people who prove they have the means and intent of paying back what they owe, including any fees agreed upon.
Should a lender find out any discrepancies or lies in an application, they can warn others in the same industry, making it difficult for a fraudulent borrower to find a company that will accommodate their payday loan request in the future. Only provide honest and accurate information on any and all applications.
Upcoming CFPB Regulations
The Consumer Financial Protection Bureau (CFPB) recently released a regulation that requires lenders to check whether borrowers can repay their debts, also capping how many loans a payday loan lender can allow for each borrower. This new upcoming regulation is yet to take effect in 2019, and still has to undergo two major challenges – for now, while it is not yet in place, this type of assistance is still very much available to millions and millions of Americans who experience some form of financial hardship and could use the help which pay day loans can provide.
Paying Cash Advances Back and Avoiding Debt
Payday loans are relatively smaller amounts and can be received through a fast and simple process. As it is easy to qualify for most people, there is an easy way to fall into a debt trap. As such, here are a few things to remember when taking out quick cash advances or instant online payday loans:
- Make sure to only borrow what you can pay back
- Interest rates may range between 200% to 700% – this all depends on how long you need your loan
- Keep in good standing with the payday loan lender – especially if in the future you might end up needing a loan from them again
- Make sure whatever amount you borrow, the lender lets you know all the small fees and interest that come with it.
What to Avoid in Online Payday Loan Lenders
It is completely understandable to take out a loan during times of financial trouble. However, due to desperation, it’s easy to fall prey to lenders who have no honest business but to take your money. Before taking out a quick payday loan, remember the dangers that may possibly come with it. In addition, here are a few warning signs to be wary of – if lenders have these, avoid them at all cost:
They Are Only Present Online
Many payday loan lenders are legitimate, but most of them have both an online presence as well as storefront or physical offices. As a rule of thumb, make sure to check if the lender you are going with has either a physical office you can walk into, or at least be registered with the Better Business Bureau (BBB) as a legitimate company with little to zero problems with their customers.
Short Term Loan at High Cost
There are many payday lenders that allow short term loans without going through an extremely high cost. While there are quicker loan terms that sound attractive, you should also double-check if your next paycheck could cover that cost as well as your other expenses. Be sure to check the APR and remember this may add up quite quickly if you ever need to extend the loan for an additional few days or weeks.
The Loan Is for Your Full Paycheck
Be wary of loans that are the amount of your full pay check – this is going to put you in even more debt than you may realize. If you have to extend a loan that ends up as the amount of your full paycheck, most likely you will end up in a black hold of debt that will take you years to get yourself out of.
Get a Payday Loan Now!
Getting a payday loan can be the difference between surviving a financial hardship and creating one. It’s always important to take into consideration any risks you are taking, and make smart moves when it comes to future finances after surviving this one. You will need to pay back the right amount on the agreed upon repayment date or dates, no matter how good your financial standing is or not. Remember that payday loans are contracts, and you should go through them properly so as to not create an even bigger financial hole. While getting out of debt is very possible, there are surely ways to pay off the money in more manageable payments.
Bottom line: borrow only what you know you can repay, and do not take another payday loan to pay off your previous one – it will only create further problems. Make sure to go with a reputable online payday loan lender, and manage your finances from here on out. Always borrow responsibly.
You can rest assured that with us, the payday loan application process is reliable, safe, and reputable. Our process is secure, confidential, and easy from start to finish.