Payday Loans definition – What is It?
- Definition of payday loan
For individuals who are employed and have just one source of income, the task is always finding money from other sources in case something comes up.
What happens when you have to pay for an emergency medical bill, your child’s school fees, or maybe catch up on a mortgage payment.
These are some emergencies that may hit you somewhere in the middle of the month before your next payday. This will prompt you to look for a fast alternative for extra cash.
Loans are your most viable way out of a financially difficult situation. However, most people have a negative view of loans. They think all loans are bad. In this article, we will explain more about payday loans which could work for you sometimes.
Definition of a payday loan
Payday loans are defined as short-term loans offered to an individual who should pay up by his next payday. This loan allows you to borrow money for a couple of weeks until you get your next paycheck and pay back the payday loan.
Payday loans have proven effective and helpful for some people in unexpected financial situations. Title Loans are sometimes confused as payday loans, but, in that case, you are using your vehicle as an asset to get the loan.
Applying for a payday loan
- easy to apply
First, let’s look at the application for a payday loan at the payday company. All you have to do is fill up an application form at the payday company. Then provide IDs and documents to prove who you are, a verified source of steady income, or a certificate of employment. In this case, you can present your previous paychecks.
Applying for payday loans online<span style=”font-weight: 400;”> is not so different. However, there are two types of payday websites. There are payday loans online sites and lender matching sites.
Online payday loan sites allow the borrower to deal with the lender directly.
The lender matching website is different. This site uses the specifications you have put to link you as the borrower to the lender of your description.
It is like a search engine for the borrowers, connecting you to the lender of your choice. Lender matching websites are created in such a way that the lender can get the borrower’s information to process your loan.
When the loan application is processed and the borrower’s personal and financial details verified, the borrower can get his loan. The lender disburses the loan funds to the borrower via check or deposits them into his bank account.
Repaying the loan
Getting the next paycheck for the borrower calls for settling the loan debt. Payday loans must be repaid as one lump sum of cash and not in installments by your next payday.
You have to clear your debt all at once. The payment is a total sum of the cash you have borrowed, plus interest. It may also consist of other types of fees.
Sometimes you could have a problem repaying the loan on time. This could prompt the lender to encash the check that the borrower issued him in the first place.
By cashing that check, the lender gets his money back plus the interest, the fees charged, and the penalty charged for not getting the payment in time. That is a large sum of money. It is essential to get another alternative that lets the lender cash your cheque. This is where the option of rollover comes in.
If you cannot repay the loan on time, this is the other option you have. Depending on the terms and conditions of your loan contract, the rollover option comes with a couple of words tied to it. This option allows you to get more time, typically another 30 days, to pay up the loan.
However, there is a catch. The lender will review all your contacts and probably increase the interest rate. You also have to pay processing fees for this option and the penalty for rolling over.
This option could prove to be utterly dreadful if you’re not careful. This prevents borrowers from repaying more than what they owe, thus preventing potential financial trouble. You may eventually end up getting into way more debt with the rollover option. It is always important to weigh all your option.
- expensive loans
Payday loans online are one of the most expensive loans out there. When you look at the payday loan’s annual percentage rate, you will realize that their annual percentage rate falls between 300%-400%. This is among the highest in the markets. However, a payday loan is a short-term unsecured loan.
High-interest rates make perfect sense. The loan must not last for more than a month, and the loan amount is small. This is why their interest rates are incredibly high.
Credit information has little or no use in payday loans. We are talking about payday loans online with no credit checks. This is because the loan’s security is spread to the high- interest rates and postdated statements. This is the most attractive aspect of this loan.
It is accessible to all sorts of people out there. You can get a payday loan with bad credit, unlike the other loans like the traditional loan.
While we are at the credit issue, it is essential to note that failing to repay any debt you have could lead to a bad credit score. The situation worsens if you fall into the payday cycle where you keep rolling overpayments. It is essential to keep track of the repayment of a loan before you fall into deeper financial trouble and end up with a poor credit score.
Payday loan and collateral
- does not need collateral
A payday loan does not need collateral. Collateral has always proven to be a problem for a lot of borrowers. The worry of losing your item or property for failing to pay a loan; a double loss is just unbearable for anyone.
This is one of the reasons that discourage a lot of people from taking up a loan. However, collateral is not an issue when it comes to payday loans. Payday loans, even for bad credit, don’t require any form of collateral.
A payday loan does not need collateral for one reason – the loan’s security is already guaranteed by the postdated check and the high-interest rates. Not requiring collateral attract many people to take out a payday loan.