When cash is tight a payday loan may seem like a good idea to get money fast. However, such a loan may not be ideal if you can’t pay it back right away. Below is a basic summary of payday loans and how they work.
Payday Loan Basics
So what exactly is a payday loan? It’s essentially a short-term loan that needs to be paid back when you get your next paycheck. To get a loan, you’ll need a stream of income and a bank account. Loan amounts typically run anywhere from $200 to $1,000 but each state has its own guidelines.
Where Can I Get a Payday Loan?
Payday loans, also called cash advance, can be obtained at loan agencies, pawnshops, certain retail stores or online. In about 20 minutes you can walk out with the money you need. All you have to do is:
- Get confirmation of your bank account and income
- Set up an appointment to return for repayment
- Bring a signed check that will be used to withdraw any funds due in case you do not keep your appointment.
Most loans are usually due at the time of your next paycheck but there may be some lenders that can have a due date up to a month later. It may be a good idea to check around and see which lender has the best terms.
Obtaining a payday loan can also be costly. Currently, most lenders charge around $15 for every $100 borrowed. Online lenders usually charge even more. While the need to get money quickly may outweigh these fees at first, it can create an expensive cycle of borrowing and repayment.
Loan Repayment Terms
When you receive your next paycheck, either the loan amount due will be automatically withdrawn from your account or you will need to meet with the lender to repay. If you do not have the available funds the lender will keep trying to withdraw them. They may try to collect smaller amounts if they can’t get the full amount.
The lender will then begin to send letters to receive their payment. If that fails, your account may be sent to a collection agency.
A Risky Business
While payday loans may seem like a good idea to get cash quickly, it can be a risky move. It’ll cost you a pretty sizable fee upfront in order to obtain the money, and if you can’t pay it back immediately, it could spell disaster for your financial future.
In a pinch, a payday loan could help if you need to secure money quickly. However, it’s imperative that you do your homework on the lender and pay any money back as soon as possible to avoid bank fees and potential collection calls.