How Payday Loans Work

Let’s have a recap first. Payday loans are short term, fast and hassle free loans that are the ideal solution for any unexpected shortage of money that may arise in your life. It can be a medical bill, a credit card bill, a loan installment, money to repair your car, fees payment or just a shopping deal that you cannot afford to lose out on. You can borrow $100 to $1500 via payday loans and it needs to be repaid by the next or subsequent paydays. Payday loans are the second name for convenient lending. So you can apply for it from just about anywhere. There are thousands of payday loan outlets around America and you can either walk into any one of those or apply online. The online payday loan industry has really boomed in the last few years. Log on to any search engine and search for payday loans to choose an online payday loan lender.

Criteria to be met

Most lenders have three requirements that will qualify anybody to receive a payday loan or a cash advance.

  • The person must be a US citizen and over 18 years of age.
  • He/she must be employed and make at least $1000 every month. ($800 every month if he/she receives the income via a government program like social security)
  • Must have an active savings or checking account with an American bank.

That sums it up. If you satisfy the above mentioned criteria, then you can qualify for a payday loan within minutes. There is no pre-approval verification or unwanted documentation. If you look closely, you will find that there is no credit check either. This is one of the biggest advantages of a payday loan over others forms of loan. It means the payday loan lender will never look at you as if you have the worst case of an extremely contagious disease called bad credit. You can get a loan irrespective of your credit score. Once you qualify, you will either receive a check for the amount or it will be credited directly into your checking account.

Repayment

Borrowing money is always great until you have to repay it. Payday loans have to be repaid by your next payday. Let’s say your payday is on the 10th of every month and you borrow on the 21st of the month. Then you have about 19 days to repay the loan plus an interest fee (about $15 on every $100 borrowed). You can arrange for the money to be debited directly from your checking account on the next payday. Or, you can give the lender a post dated check that will be cashed on the payday. If you are unable to make the payment on the next payday, it can be extended to subsequent paydays. But the interest rates will keep mounting and additional late payment charges will also come into the picture. Believe me, you don’t want to do that. Some other repayment options offered by most lenders are

  1. Repay the loan amount and roll ahead the interest charges to a separate loan.
  2. Repay the interest amount and part of the loan and roll the remaining amount to a separate loan.
  3. Pay only the interest charges and roll the entire loan amount to a separate loan.

But if you look at all these, you will notice something common. They all require you to borrow another loan. Now, unless you have another emergency requirement for money, why would you want to borrow another loan? So stick to your plan and repay it as soon as possible. Here’s a tip. If you find yourself in financial emergencies more often than not, then you need to go back to the drawing board and review your finances. Do not rely on payday loans as a long term solution for all your financial woes.