A common question comes up here. “What is a payday loan?”
A Basic Definition for a Payday Loan
State maximums aside, the lender looks at the actual amount of money a borrower receives on his/her weekly paycheck when determining the loan amount. Lenders won’t likely issue a loan beyond what the borrower can pay back.
Payday Loans: Applying and Receiving
Also, the borrower must present a signed check or sign off on an electronic funds transfer agreement. Essentially, the borrower provides the means to pay back the loan at the time the loan is approved. Usually, the borrower has two weeks to a month to pay off the debt.
At a brick-and-mortar payday loan business, the loan will be issued in cash on the spot. Online loans, however, require at least 24 hours to deposit into a checking account. Certain online loans can be picked up in person at a set location. Generally, online payday loans are deposited into checking accounts.
Be aware pprovals for a payday loan aren’t automatic. A lender can deny the loan when you already have outstanding payday loans out, previously bounced checks, don’t make enough income, or just appear to be too much of a credit risk.
Costs of a Payday Loan
With payday loans, a borrower may pay 15% on every $100 borrowed on a two-week deal. Failure to pay the loan back on time leads to more interest and significant penalties. Failure to pay in full usually comes with collection actions and negative reports to the credit bureau. Defaulting on a payday loan could lead to a lawsuit and serious default marks reflected on a credit score.
Borrowers capable of acquiring a personal loan or other less-costly lending option can avoid high-interest payday loans. Not everyone finds him/herself in such a position though. Payday loans represent the only borrowing options available to them. Even with high interest, the last chance nature of these loans make them worthwhile. Looking for cheaper short-term loan options makes sense. Finding a short-term lender willing to approve a standard personal loan, however, could be difficult.