As a consumer, you may come across payday loans when searching for quick cash. These loans have been around for years and have given millions of Americans access to funds they might not otherwise have had. The terms "payday," "short-term" and "high-cost credit," which are used in connection with payday loans, can be confusing.
The payday lending industry is an $80 billion-a-year business in the United States. The basic premise of these businesses is to enable people who need small amounts of money to pay very high-interest rates (usually 10% per month).
SFGate is one of the financial brands that can help with payday loans. However, before you get an online payday loan from SFGate, here is what you need to know about payday loans:
What is a payday loan?
A payday loan is typically a small, short-term loan for those who are not able to meet credit obligations as they become due. Instead of borrowing money from a bank or another lender with fixed terms and rates, payday lenders make small loans secured only by the borrower's next paycheck.
Customers pay back the principal amount of their loans along with a finance charge, usually within two weeks. So, why would anyone willingly enter into this kind of loan? It does seem counterintuitive. The simple fact is that 76% of borrowers with loans due in two weeks are unable to repay the full balance at that time. For many, payday loans are simply a way to tide them over until their next paycheck comes in.
Many borrowers use payday loans to pay for necessary items, such as groceries or utilities. Research shows that payday borrowers are less likely to use their loans for necessary items than other types of loans. Payday loans borrowers use this option because they are not able to get credit elsewhere. They often provide easy access to funds for borrowers who may not qualify for conventional bank loans.
Applying for Payday Loans
Payday lenders typically make short-term loans to borrowers that are not able to get credit elsewhere. The loans are usually for small amounts of money, often less than $1,000. You can easily apply electronically in a simple "click of the mouse" transaction.
The borrower writes a personal check for the total amount of the loan and fees to the lender. Loans are often available for a few weeks up to a few months. However, some lenders offer "longer term" instalment loans of several months to several years.
The typical payday loan has very high interest rates, if not an annual percentage rate (APR). This ranges from 300% to 1000%. Lenders say this is a form of "credit insurance" and the lenders justify the high interest rates by saying borrowing to pay bills, such as rent or car repairs can be necessary in case something goes wrong.
Important Facts to Note!
The following points are true of payday loans:
- Application for payday loans is much simpler than that of other loans. The approval process takes much less time. Most importantly, there is no paperwork needed for the application process, as is the case with bank loans. Some lenders will even not look at the borrower's credit score as a prerequisite to issuing the loan.
- Borrowers typically pay back payday loans when they receive their next paycheck. Interest rates on loans like these can range anywhere from about $10 to $30 per $100 borrowed, and most borrowers pay between $15 and $20 in fees per $100 borrowed.
- The industry mainly comprises under-regulated companies that operate across state lines. This gives them access to millions of unsophisticated consumers who do not have many choices but to take advantage of these high-cost loans. These lending practices often trap borrowers in a cycle of debt.
- Take payday loans if you really have to and is necessary. Instead, look for options. Otherwise, do not apply for such loans for luxurious expenses!
When considering the option of payday loans, you must find out the much you qualify for application. In most cases, there are currently no limits on how much or how often payday lenders can lend to an individual borrower. However, some places do limit the number of payday loans an individual may take out.
Disclaimer: No Deccan Chronicle journalist was involved in creating this content. The group also takes no responsibility for this content....