It happens to everyone. There’s just enough money to pay the month end bills then all of a sudden the car breaks down, the family pet gets sick, and the cost of milk just went up again. Now, strapped for cash, the mortgage is due and the funds are used up. What to do? If emergency funds are dry – or non-existent, one consideration is a payday loan. A payday loan, if used wisely, can help stave off late payment penalties, bruised credit, and more. While also convenient to obtain, it’s important to know exactly what’s involved with taking out a payday loan, and how do payday loans work.
A payday loan, also known as a cash advance or payday advance, is a cash loan typically in the amount of $250 to $1,500, that can be applied for online, by phone or at a lending storefront. Typically, customers are asked to complete a basic one to two page application, which is then submitted for approval. In order to become approved for a payday loan, customers must be employed, have a valid checking account and furnish some type of identification such as a social security number. Most payday lenders do not look at a customer’s traditional credit history.
Before choosing a lender, ensure they are a member of the Community Financial Services Association (CFSA). Payday loan companies that are members of this association have been proven to have responsible lending practices and protect all rights of the borrower.
It is important to be aware of the interest rate attached to each loan. The interest rate on a payday loan is much often much higher than an interest rate on a conventional loan. Payday loan companies do this to ensure that customers will pay the money back when it’s due. If the loan is not paid back on time, interest will continue to accrue on a daily basis. Until the loan is paid back in full, the interest rate can continue to rise. Also note that payday loan companies do not report information related to loan repayment to the credit bureaus. Whether or not a loan is paid off on time bears no consequence on a credit score.
Paying off a cash loan on time though does improve one’s chances of being approved for another loan in the future. Financial jams can creep up at a moment’s notice, causing monetary setbacks that can snowball out of control. A payday loan can help curtail that snowball and provide immediate financial relief. Having a better understanding of how payday loans work is a good way to make sure that you are getting the payday loan that is right for you.
