Are you struggling to get to your next payday due to your little income? Well, payday loans can be an excellent choice, especially if you are comfortable with the payment terms.
According to PYMNTS, in collaboration with LendingClub, as of September, 66% of Americans live paycheck-to-paycheck, making it hard to save or invest money. These statistics show that most Americans struggle to gain financial freedom with their earnings.
Many Americans have become regular clients for payday loans in the US. However, they could be heading to the wrong side of their financial journey.
Continue reading to learn about payday loans and what to do when in a debt pit. You can also subscribe to our list to receive first-class content on financial matters.
What are Payday Loans?
A payday loan is a short-term loan typically due on the borrower’s next payday. These loans are typically small in amount, ranging from a few hundred to a few thousand dollars. They are intended to help borrowers cover unexpected expenses or financial emergencies.
Payday loans are known for their high-interest rates and fees, which can make them very expensive for borrowers. Sometimes, the annual percentage rate (APR) on a payday loan can be hundreds of percent, making it difficult for borrowers to pay off the loan on time.
Characteristics of Payday Loans in the US
- They are short-term in nature
- The interest rates are very high
- Payday loans are usually due in two weeks (during your next payday-hence the name)
- The loan amount is usually less than $1000
- You’ll pay the loan amount plus the interest all at once
- Some lenders need you to give them a check before approving your loan
- Lenders don’t bother with the lender’s credit history
Payday Loans Requirements in the US
To qualify for a payday loan, you need the following:
- A steady source of income
- A checking account
- Identification documents
- Your state must be supporting payday loans
- A valid residence address
- Valid contact information
Some lenders may also require borrowers to have a minimum credit score or a certain amount of credit history. But that’s not usually the case with most payday loan lenders in the US.
One of the main advantages of a payday loan is that it can provide borrowers with quick access to cash when they need it. However, the high-interest rates and fees associated with these loans can make them a risky option, particularly for borrowers who may not be able to pay off the loan on time.
How can You Use a Payday Loan?
There are no restrictions on using the cash you get from a payday loan. It’s a short-term help for emergency needs. For instance, if your car breaks down before your paycheck, you can rely on a payday loan to repair your car.
However, saving money for emergency needs will be safer because payday loans can be so expensive. The high-interest rates cause more people to default on payday loans.
What if I Don’t Pay a Payday Loan?
There is always a consequence to everything you do. So if you dont repay a payday loan, the lender can’t report your history on any of the three credit bureaus. However, they can send debt collectors to your location. In addition, the lender might threaten to sue you if you fail to repay the loan.
You’ll also get into a bad financial status if you default on your payday loan. As a result, it will be difficult to borrow money elsewhere with a bad score.
Frequently Asked Questions
- Is it a wise idea to take a payday loan in the US?
Payday loans have very high-interest rates, which makes them so expensive. Therefore, only take a payday loan if you need funds faster and if you are sure to repay. Remember that failure to pay can land you in a bad financial state. And that’s a bad mistake to avoid.
- Can a payday loan hurt my credit score?
No. Payday loan lenders do not report your history to the three main credit bureaus in the US. But that should not excite you to default on a payday loan.
- Can a lender deny me a payday loan?
The main reason that can make a lender deny you a payday loan is when you dont have a steady income flow.
The Bottom Line
If you’re considering taking out a payday loan, it’s important to weigh the costs and benefits carefully and ensure you fully understand the terms and conditions of the loan. It may also be a good idea to explore other options, such as borrowing from friends or family, using a credit card, or taking out a personal loan from a traditional lender.
The best thing to do is to make more money such that you can cater to any emergency need that comes your way. Learn to make money while at home, which will be a good idea to stay out of debt and build your financial credibility.
Whats your take on payday loans? Comment below, we will be glad to start a discussion with you.