How Do Payday Loans Work?
Most of us have encountered a time, when we were in need of some extra funds for dealing with an unexpected expenditure that came our way. You might have headed down to the car mechanic, and he chalked out a bill of about $500 for repairs. After having taken care of your monthly bills and that additional road trip that you have planned, it seems like a bleak possibility to have that kind of money stashed away somewhere, for your rescue. It is at such a time that you are reminded of all those quick cash loans that innumerable financial agencies claim to provide, and you are left wondering if they would help you out too.
What are payday loans?
Payday loans, also referred to as cash advances, are short-term and unsecured loans that are granted in small amounts, to the one in need. The entire principal amount of the loan, along with a lender’s fee is charged to the customer, and becomes due for repayment by his next salary pay date. The borrower may avail a payday loan of up to $1500. The purpose of these short-term loans is to manage the borrower’s one time need of fulfilling his financial requirements before his next paycheck arrives.
How Payday Loans Work?
The basic process of a payday loan involves a creditor, who facilitates a short term cash advance to a borrower with a piece of ID and a bank account. More often than not, the finance companies grant payday loans in accordance with their own eligibility criteria, with some of them making the loan available without performing any credit check on the borrower.
When an individual visits a lender for availing a short term loan such as this, he is obliged to write down a postdated cheque, for an amount including the entire principal of the advance as well as the creditor’s fee. In some cases, the borrower may also set up electronic standing instructions in his bank account, which would enable an automatic debit of funds from his account and a simultaneous credit to the lender’s account. By the next pay date, if the borrower fails to pay back the entire amount by returning to the store in person, the lender can go to the bank and get the cheque redeemed. In the event that the borrower wishes to roll over the loan to an added tenure of another pay month, he may simply pay off the lender’s charge or fee, and let the principal amount be charged with another cycle of interest. The term of the loan is usually two weeks, and in case of a rollover, the amount can stay unpaid for another fourteen days of the next month.
With the advent of technology, it has now become comparatively easier to apply for a payday loan via the online portal of the financial lender’s website. All you need to do is fill out some relevant details regarding your bank information, employment details and maybe a few contact numbers of your friends and family on the online application form, and you may avail the advance within a day’s time. The details of your family and friends are used by the lender, in the event of you not repaying the loan amount by the next due date. The amount that you have applied for is either paid to you in hard cash over the counter, or credited to your account within 24 hours.
What are the requirements to get a payday loan?
- It is not mandatory for an individual to be employed in order to avail a payday loan. The only financial requirement is that he should be having a steady source of income that will take care of the repayment schedule by the due date.
- The borrower should be at least 18 years of age (or legal age in the province they live in), and a resident of the state he chooses to fill out the loan application for.
- You may be granted a payday loan even if you have a bad credit score.
- The borrower must have an active bank account, which has been opened at least a month ago. He needs to furnish the bank account details to the lender for repayment purposes.
- In case you choose to apply for a payday loan through the lender’s online portal, you should be available on contact, for application verification purposes.
- If you choose to go in-store to apply for the loan, you will be required to submit a valid photo ID issued by the government, along with hard copies of your bank statement and income pay slips.
In addition to providing you with sound financial help in times of a crisis, the payday loans also help build up on your credit score, and make you more eligible for availing other long term loans as well, such as a mortgage or a car loan.