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Things You Must Need to Know About Payday Loans and How Does It Work?
Things You Must Need to Know About Payday Loans and How Does It Work?

What is a Payday Loan?

Payday Loans is a loan for small amounts of money, often $ 500 or less, that are generally due on the borrower's next payday. Consumers often turn to payday loans when they have no cash, run into a cap or cannot wait until their next paycheck to pay their bills.

Loans are returned in several ways. Borrowers may be requested to give the lender access to their bank account. Alternatively, you may need to issue a cheque with a later date for the amount borrowed, plus a finance charge. The lender has the option of depositing the check when the loan expires, which is usually within 14 business days.

Keep in mind that payday loans are very expensive, particularly when compared to other types of loans. Rates may vary from $ 10 to $ 30 for every $ 100 borrowed. That means that a two-week payday loan with a $ 15 fee for every $ 100 would equal an annual percentage rate, or APR, of 400 percent. Credit cards, on the other hand, usually have an annual percentage rate that ranges between 12 and 30 percent.

The Payday Loan Industry

Payday loans are big business. The Community Financial Services Association of America (CFSA) has more than 20,000 member locations, more than Starbucks or McDonald’s. About 19 million American households (almost one in six in the country) have obtained a payday loan at some time.

How Do Payday Loans Work?

Payday loans work differently than personal and other loans. Depending on where you live, you can get a payday loan online or through a physical branch with a payday lender.

Different states have different laws on try payday loans compare, which limit how much you can borrow or how much the lender can charge in interest and fees. Some states totally prohibit payday loans.

Once you have been approved for a payday loan, you can receive cash or a check or deposit the money in your bank account. Then you must return the loan in full plus the finance charge before its due date, which is usually within 14 days or on your next paycheck.

Payday loans have a financial charge, which is usually based on the amount of your loan. Because payday loans have such short payment terms, these costs translate into an abrupt APR. According to the Federation of American Consumers, payday loan APRs are generally 400% or more.

Despite the high costs, The Economist estimates that approximately 2.5 million American households obtain payday loans each year. There are some reasons for this popularity. One is that many people who turn to payday loans do not have other financing options. They may have bad credit or have no income, which can prevent them from obtaining a personal loan with better conditions.

Another reason may be a lack of knowledge or fear of alternatives. For example, some people may not feel comfortable asking for help from family or friends. And although there are alternatives to payday loans, they are not always easy to find.

Many people turn to payday loans because they are easy to obtain. In fact, in 2015, there were more payday lender stores in 36 states than McDonald's locations in all 50 states of the USA, according to the Office of Consumer Financial Protection (CFPB).

No Credit Check: Payday lenders have few requirements for approval. Most do not perform a credit check or even require the borrower to have the means to pay off the loan. All you usually need is identification, a relatively good bank account and a stable salary.

Thinking About the Payday Loan?

Before applying for a payday loan, you should consider alternatives such as a short-term loan from a credit union or a national bank, or a cash advance on your credit card. These alternatives also carry rates but are generally much lower than those of payday loans. If you are a military, contact the help society of your service. They can offer loans at no cost, without interest, or even grants, to service members or family members to help them overcome a financial challenge.

If you have trouble managing your debts, contact an accredited nonprofit credit counsellor.

The most important thing: create a budget and keep it. Do your best to live within your means. Establish an emergency fund of at least three to six months of living expenses that you can take advantage of in case you face an unforeseen difficulty.

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