Payday Loans

What is a Payday Loan?

A payday loan is an unsecured, personal loan with a quick turnaround time and for a limited amount. This type of loan doesn't require a credit check. It requires minimal paperwork as well.

What Do I Need to Know about Payday Loans?

For these reasons, the terms are restricted and the interest rates are high. In short, payday loans are easy to get but they are expensive. Borrowers can take out only up to $1000 or in some cases up to $1500 at one time. The loan is due within one or two pay cycles, which means in either two weeks or one month. Interest rates on the loan, if annualized, sometimes amount to a whopping %500! And there are also fees for payday loans. For these reasons, we encourage payday loan customers to use payday loans very wisely.

All About Payday Loans

a payday loan is a personal loan which is not secured against the borrower's assets. That means when you take out an payday loan, you are not putting up your house, your car, or any other assets as collateral. You are simply getting an advance on your paycheck for a fee plus interest on the amount of the loan. One of the requirements for getting a payday loan is that you have a steady monthly income of at least $1000. That's to ensure that you will have the resources to repay the loan with your next paycheck. The guarantee of your next paycheck is what makes the payday loan work: no collateral is needed, and no credit information is required, either.

Why are Payday Loans Expensive?

Payday loans are risky for the lender. Since payday loans are easy to get, with little documentation required, the rate of default is higher than on traditional loans. Therefore, to cover costs of non-paying customers, payday loan lenders must set their fees and interest rates higher than normal. They also limit the amount of money they lend to $1000 or in some cases $1500. Another result of the high default rate is short loan terms of one or two pay cycles. It's a tradeoff for the borrower: convenience and speediness cost money.

How Can a Payday Loan Help Me if it's Expensive?

Even though payday loans seem expensive in the long run, especially if you don't repay them, they are cost effective for lots of borrowers. The other way you can look at it is: just because it's cost effective doesn't mean it's cheap. For example, if you are facing an overdue credit card bill whose terms mean higher interest rates and fees if you don't pay on time, the higher interest rate will affect all your future balances. In the long run, using a payday loan to prevent triggering a higher interest rate on your credit card can make sense. The payday loan fees you pay now may seem expensive, but if they keep your credit card from raising its interest rate, you'll save money in the long run.

If a late bill gets reported to a credit reporting agency, your credit score could be affected. That means you will pay higher interest rates on any future mortgages, car loans or other traditional types of loans. Paying the fees on a payday loan may make sense now, in order to keep your credit score intact for the future.

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