How Do Payday Loans Work?
There are many types of loans out there that can help you when you are in a tight spot. However, before you go jumping to take our online payday loans from CreditNinja first consider that you may have other options.
It’s not that you should take out a loan, it is just that if you are in a tight spot, and you are super strapped for cash, a payday loan might not actually help you, in some cases, it can actually make things much worse for you.
So, should you be taking out a payday loan? Well, it depends, consider your financial situation first and foremost, and if it is possible that you might be financially stable enough to be able to pay back a high-APR loan like a payday loan, then sure.
Although, there are probably better options, but, let’s consider all of the factors we know about Payday loans before we make a judgment.
What Is A Payday Loan?
Let’s start off with something simple… What is this type of loan? Well, it is exactly what it says it is, it is a payday loan, a loan that pretends to be your ‘payday’. Generally, these types of loans will help you to make ends meet from one payday to the next.
So, if you are a bit strapped for cash in between your paydays, then this type of loan will actually help you get by.
It’s a pretty simple premise really, you take out a payday loan, usually a small amount, use the loan for your intended purpose and then pay back the loan plus interest when arranged, which is usually around 2 weeks after you took the loan out.
There is a lot of warning around these loans however, the main reason being that they come with high interest rates. Its interest rate could actually be as high as 1,500% in some cases, which is a lot higher than most other forms of borrowing.
For reference the APR rate on credit cards is usually around 22.8%. On some other types of loans the APR can be as small as 6% or 20%, so this APR rate is very high. Also, typically APR will dictate the cost over a year, but Payday loans are only weeks/months.
So this is something to keep in mind when dealing with this type of loan, it will cost you, and even though it shouldn’t cost you this much, it will.
How Do They Work?
So, how do these loans work? Well, they are typically available through many online lenders, and it is a brisk process, it doesn’t take long. Once the lender has approved your application for the loan, you will usually get your money the very same day.
You will often have a credit card check done on you, amongst other checks to ensure that you will be able to repay the loan.
You then use the money for its intended purpose and then when the repayment period hits you will need to repay this loan as well as the interest on it.
You can repay this type of loan in a few different ways. First of all, you can make one large payment to clear all debt at the end of the repayment period, yet, if the repayment period is a bit longer, you might also be able to repay your loan in installments.
It is not uncommon for people to set up recurring payments, or even a CPA, which is similar to setting up a direct debit repayment. Doing so allows lenders the ability to take money owed straight from your account using your bank details.
With CPA, it uses card details, instead of bank details. You could also set up a standing order in order to repay this loan as well.
What Should I Consider?
Payday loans do not come risk-free sadly, but their attractiveness comes in the ability to get a small amount of cash quickly. Lenders will also be more likely to offer a loan to someone who has bad or poor credit than a standard lender. Credit checks are still done though.
Yet, we should say that taking out this type of loan is not a great idea if you are struggling to get any other loan.
They have high interest rates, come with short terms of repayment, it appears on credit history which can affect the ability to get a mortgage, you can also end up in a cycle of debt due to the expense of these loans.
What Are My Alternatives?
There are plenty of alternative options, whatever your situation is, you could try to get a personal loan, a credit union loan, an advance, using overdraft fees, or you could borrow from friends or family, among other things.