The most important thing that a person should know before taking out any kind of loan is the mechanics of the decisions and how it will affect them over the long haul. Many of us fail to listen to our mothers anyway, but if we had taken the time to do so, these are just a few of the things she would have told you about payday loans.
1. They Are Only For Small Amounts
A payday loan is not designed to help you buy a new car or move into a new home, they are issued with the purpose of helping you handle a temporary hiccup until your next payday. Typically, the amount you will loan is not smaller than $100, nor larger than $2,000. If you require a larger amount for a bigger problem, then a payday loan may not be your best course of action.
2. Payday Loans Are Meant To Be Paid Quickly
In the majority of instances, a payday loan is given, with the idea that you will pay it back as soon as you receive your next check from your employer. Most payday loan lenders will request information about your current rate of pay, including stubs, and the amount you are loaned and the amount of time you have to pay the loan back are determined at that time.
3. Interest Rates Will Be High
Payday loan lenders know that you would not turn to them if you had another means of coming up with the cash to handle your current emergency. As a result, payday loan interest rates are incredibly high and can range anywhere from 20 percent to 100 percent, depending on the reputability of the loan providers that you have to choose from. These rates can be incredibly punitive, so tread lightly.
4. There Are No Credit Checks
The majority of payday loans are given out rapidly, which means there is very little time for a credit check. Most payday loan providers will only require proof of employment and your bank account information, so that they have a place in which to deposit your funds once the learn has been approved. Payday loans are often the final refuge for those who cannot receive a loan from a more traditional financial outlet.
5. Interest Rates Vary From Bank Loans
One of the main reasons why a payday loan comes at such a high rate of interest is due to the fact that there is a much smaller window of time for a payday loan lender to collect their intended amount of interest. A bank or credit union is able to charge their lenders an annual rate, which allows them to supply their loans at a lower interest rate. A payday loan lender does not have this luxury.
6. People With Bad Credit Can Obtain Them
Payday loans are certainly not the exclusive domain of those who have good credit. Since a payday loan is not given for a large amount or one that exceeds your current rate of pay, a payday loan lender is able to be much more flexible than a bank or credit union. Their focus will be trained on your most recent financial activities, whereas a bank looks at the totality of your finances.
7. All Payday Loan Outlets Are Not Equal
As with any other major life decision you will make, it behooves you to do your homework about the payday loan outlet that you decide to do business with. While some payday loan lenders are very reputable and able to provide the help that you need in a timely and efficient fashion, there are others whose aim is to prey on those who are in need. Exercise extreme caution.
8. Do Your Comparison Shopping
Even if you were obtaining a loan from a bank or a credit union, you would probably not decide to sign on the dotted line after your first meeting with a financial institution’s representatives. A payday loan should not be any different. Before making a final decision, be sure to speak to more than one lender, so that you have a clearer picture as to what your options entail.
9. Payday Loan Outlets Can Contact Your Employer
Should your hard times become worse than expected and you begin to struggle to pay back your payday loan during the amount of time agreed upon, many payday loan lenders utilize your employment information to contact your place of work. They may also need to contact your employer to confirm that you are actually employed and the only way to avoid this entirely is to provide all of the information asked for by the lender.
10. Loans Are Given Quickly
In certain instances, a borrower is able to fill out all of the necessary paperwork and receive their loan within an hour of their initial meeting with the lender. The turnaround time for payday loans is designed to be fast, since time is usually of the essence. Even if a payday loan outlet is not able to transfer your funds within an hour, one business day is usually all it takes.
11. Know Your Terms
Don’t allow your haste to affect your better judgement. When filing an application for a payday loan, it is important to read all of the fine print and know the terms of your agreement. Every comma and decimal point must be analyzed, otherwise, you could end up signing your name to an agreement that is extremely unfavorable. A lender that does not clearly outline their terms is not one you should be speaking with.