Workers Use Payday Loans to Survive Until Their Next Paycheck Arrives

Payday loans are designed for people who need money immediately. The interest rates on these loans are typically high, so customers only apply for them if they need immediate cash to pay bills and other expenses. These loans are popular because workers often need money to pay bills within a week’s time. If a person runs out of cash before he receives his paycheck, then he may apply for one of these payday loans. 

The payday loan industry is very heavily regulated. Borrowers should examine the terms before taking out one of these loans. Additional fees may apply. You’ll usually apply for a payday loan by visiting a local credit merchant. These are typically found in strip malls. Some business offer payday loan applications through the Internet. The borrower needs to demonstrate that he can repay the loan. You don’t necessarily need to have a great credit score. Some companies do not pull the borrower’s credit. You’ll typically prove your ability to repay the loan by showing the lender check stubs from previous pay periods. 

Interest Rates

Interest amounts vary, and some states put a cap on the amount of interest these lenders can charge. A standard interest rate is 35% APR, but some lenders may require fast repayment. It’s typically a good idea to repay these loans as soon as you receive your paycheck. The interest rates are higher than those found on credit cards, so you really only want to apply for one of these loans as a last resort. If you can extend your credit line, then that is often a preferable option. You’ll also have to pay finance charges. These can make up a significant portion of the overall costs you’ll incur. Lenders will occasionally charge an application fee as well. You can typically expect to pay $15 in fees for every $100 you borrow. The Truth in Lending Act requires these lenders to disclose all associated costs, so calculate all the potential expenses before you acquire a payday loan. 

Applying for a Payday Loan

The principal amount is set by the lender, and it’s usually determined by the amount of the borrower’s paycheck. Your credit score may also improve your chances of receiving a higher principal loan amount. You do not need to provide any form of collateral because these are unsecured loans. 

Repaying a Payday Loan

You’ll want to ensure that you’ll be able to repay one of these loans as soon as possible. If you default on a payday loan, then the lender can legally send it to a collection agency. Failure to repay could ultimately impact your credit score, so it’s a good idea to prioritize paying off the loan by the time your next paycheck arrives. Payday loans fulfill a specific need. You should only acquire one of these loans to pay for basic necessities. You might want to call your landlord or utility company to explain the situation as well. They will sometimes delay payments if they understand you are in a tight situation.

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