If you are wondering what exactly a payday loan is, then you might want to take some time and read this post. In this post, we will take a look at what a payday loan is, how it works, and some pros and cons associated with payday loans.
So, if that sounds like what you are looking for, then let’s just dive right into it:
What Are Payday Loans, and How Do They Work?
A payday loan is a short term and quick loan, which provides you with funds you can borrow against your paycheck. Assuming you work for a company, however, before the month is due for your paycheck, an unexpected bill comes your way. Since you have little to no cash on you at the moment, but you need some cash to cover the cost of the bills, then a payday loan might be the option for you. You can go in for a payday loan to cover the cost of the unexpected bills, and then you will be required to pay back the loan when your paycheck arrives or on your payday.
Payday Loans Vs Personal Loans:
Personal loans and payday loans are some of the most common types of loans you will hear most people talk about out there. And even though personal loans and payday loans may sound similar, these are two different loan options for individuals.
1.Time of Financing The Loan
With payday loans, you will be required to pay the loan on the immediate payday. Whiles with personal loans you will be required to pay the loan in a longer time frame.
2.The Amount You Can Borrow
With a payday loan, since, you will be borrowing the money to pay for basic bills, or emergencies, you are mostly given the loan in small amounts. Payday loans have a lending cap between $200 to $1,000. Whiles with personal loans, you can borrow between $1000 to $50,000.
3.The Interest Rates Are Different
With personal loans, you will be given a smaller interest rate. However, with payday loans, the interest rates are much higher.
Pros Of A Payday Loan:
1.The Application Process Is Easy
You can be offered the funds for a payday in 24 hours or less. Also, there are many online platforms you can apply for payday loans any day and at any time. Finally, you can get your loan application approved between 15 to 30 minutes.
2.It Doesn’t Affect Your Credit Score
When applying for a payday loan, you do not need to worry about your credit score. This is because most loan companies do not check your credit history before issuing out the loan to you. So, if you have a low or bad credit score, you can still apply for a payday loan.
3.You Do Not Need Much To Apply
When applying for a payday loan, you do not need any strict requirements. The only things you need include:
- You need to be at least 18
- You need to have an open check account
- A source of income
- A government-issued ID or SSN
Most traditional loans will require you to provide tons of info before issuing you the loan. However, with a payday loan, you will only be required to provide four pieces of information.
Payday Loans Comes With Its Flaw:
Usually, the interest rates on most payday loans are exorbitant. Also, if payment isn’t done on time, you can apply for a payday loan spiral ( another payday loan to pay your previous loan). And when you cannot pay your payday loan spiral on time, you would be reported to the Credit Bureau, which can affect your credit score badly.