A guide on payday loans – Is it the best option for you?
If you consider requesting for a loan but is still undecided about your options, or you don’t qualify for loans in traditional institutions due to too much borrowing or poor credit history, payday loans can be the best option for you. Just like any other loan type, payday loans need to be repaid on time. But this is where the comparison ends. This is on the fact that lenders who offer payday loans are not banks and as much as the loans are also regulated, there are completely different rules governing them.
Payday loans are short-term loans offered in small amounts that borrowers can request for when they are in need of money. The loans were introduced to fill the gap by offering loans that banks and other financial institutions are not in a position to offer due to their high risky nature. Payday advance loans are short term and some of them need to be repaid in as soon as two weeks. But if you request for a higher loan amount, the repayment period can last for up to 20 years. To request for a payday loan, the borrower is required to write a check with the amount they want to borrow, including the loan fees. The check is left with the lender who cashes it immediately when you are ready to repay the loan.
The borrower is expected to start repaying the loan when it is due. Failure to which it can be rolled over, extending the repayment period. Payday loans are also referred to as no credit check, which means that you do not need to have a good credit history for you to qualify for a loan. This makes the loans popular, especially for people with financial challenges that require urgent financing.
How payday loans work
Most lenders require payday advance loans borrowers to repay the loan on their next payday. The check issued to the borrower acts as a guarantee for repaying both the loan and the interest rate incurred. The lender encashes the check when the loan repayment date is due. It is important that you do not request for a payday loan if you cannot make repayments on time. This is because you may risk paying more interest rates, making the loan very expensive.
What’s on offer?
Just like other financial tools, there is a wide range of providers who offer payday loans. It is important that you compare their rates and terms for you to find the most convenient product. To qualify for a payday loan, you should be above the age of 18 and have a consistent income. The good thing with payday loans is that you do not have to be on full-time employment for you to access the loan. Provided you receive consistent income to your bank account (even if it is in form of government benefits) you will be eligible for the loan.
Before the loan is approved, some lenders will go through your credit rating. Having poor credit does not mean that you won’t qualify for the loan. However, there will be limitation on the maximum amount you should borrow. Borrowers with poor credit are eligible for lesser amounts compared to those with good credit score. Lenders also impose strict terms and conditions on such borrowers.
When should you consider a payday loan?
Payday loans come in handy especially when you are in need of urgent funding. This is because it has a faster approval process and there are no strict terms and conditions regarding the loans. Some of the situations that may require you to request for payday lending include:
- If you do not have another option and are in absolute need for cash
- If you are sure that you can repay the loan on time, payday loans can be the best option.
It is also important to note that payday loans are meant for short-term financing. If you need to use the money for more than a month, consider requesting for a cheaper loan option.
Important things to consider when taking a payday loan
- Ensure that you know the total amount of money to repay, which includes the principal amount, fees and interest rates incurred
- Check your monthly budget to ensure that you have enough money left to cater for basic expenses after repaying the loan
- The loan term duration is what will determine the total amount you will incur on the payday loan. The longer the loan period, the higher the interest rate. It is therefore important that you consider lenders who offer the loan for a short-term duration.
Advantages of payday loans
Even before taking out a payday advance, it is important that you weigh the pros and cons. Will the loan be beneficial to you and does it have affordable rates and convenient terms and condition? If for instance, you are requesting for a larger amount to be repaid for more than 10 years, you need to look for a lender with the least rates. Payday loans are the fastest option for borrowers in need of instant funding. Here are some of the benefits of payday loans:
- It is among the fastest ways to access cash
Emergency situations require urgent actions. By requesting for emergency payday loans, the money will be approved as soon as 24 hours. Reputable loan lenders can even approve the loan within fewer hours provided you meet all the requirements and issue the required documents.
- 24/7 availability
An emergency can occur at a time when you least expect and payday loan lenders will always be ready to approve the loan for you, no matter what time of the day. Most institutions offering payday loans operate 24/7 processing loan requests from customers immediately they are sent. Online payday loans are also available, which means that you can easily apply for the loan any time in the comfort of your home.
- Easy to qualify
You don’t need to fill out so much information for you to qualify for a payday loan. There are also no special requirements for payday loan borrowers. Provided you are above the age of 18 and receive consistent income in a valid bank account, you can easily qualify for the loan.
- You don’t need to have a good credit score
Another thing that makes payday loans attractive is that you do not need to have a good credit score to qualify for the loan. If you can’t boast of having excellent credit history, you will be pleased to know that this is no longer a consideration. Credit score will only affect the interest rate incurred and the maximum amount to borrow. This means that if you have a good credit score, you will incur a lower rate of interest compared to when you have a bad history. Payday loans can also help a borrower obtain a better credit score. You only need to repay the loan on time and adhere to the terms and conditions of the loan.
- The loan can be used for anything
One misconception that most people have about payday loans is that they can only be used for personal needs. However, there are no restrictions on how you should use the loan. Not even the lender will limit you on how to use the loan. This means that you have endless options when taking out a payday loan. You can decide to consolidate your debts, invest in business, pay bills or cater for other family needs.
- A perfect way to start
If you have never applied for a loan before, taking out a payday loan is the best way for you to know about the lending world. You will learn how to handle payday lenders, use the loan wisely and make regular and timely payments to avoid incurring any penalties.
- Potential risks when taking a payday loan
Payday loans are required to be repaid within a fixed period. But you can face major challenges if the loan is not repaid on time. Most payday loans are unsecured, which means that you do not have to issue any property as collateral when taking the loan. Failure to adhere to the loan agreement can lead to legal consequences. Besides, you may risk not accessing loans in future if you do not repay the loan on time. You also need to be aware of scammers who can lure you with false advertisements for you to take fake loans. Try as much as possible to avoid lenders with too-good-to-be-true offers.
Requesting for a payday loan is a convenient way for you to access quick cash. However, it is important that you use the loan for genuine purposes. Before taking out the loan, ensure that you look for the lender with convenient terms and conditions. If you take up a payday loan for the right reasons and use it in the right way, be sure that you will have a positive experience with the loan.