What Is A Payday Loan?
When someone comes up just short for their monthly bills, they normally feel as though they have no option other than being late and absorbing all the consequences. But being late doesn’t just mean calls from landlords and creditors, it could also mean large late payment fees, damage to credit reports, and even turned off utilities. This is a very frustrating situation for anyone who knows that they will have the money in just a couple of short weeks.
This is where a payday loan comes in. Payday loans let people pay their bills on time, and then repay the loan when their next paycheque comes in. While there are interest charges and fees associated, these charges are usually smaller than what late fees and reactivation fees would be. A payday loan can be used so that the borrower doesn’t have to carry any more debt.
Who Can Get A Payday Loan?
Most payday loans do not involve any collateral / security. The borrower only needs to have a steady source of income along with a budget of income and expenses to prove that they will be able to repay the loan. This means that anyone can get a payday loan when they need one, and the money is often available quickly so that the bills can get paid. A payday loan is often the only source of funds for those who do not have a credit history or who may have had a bad credit history in the past.
How Does A Payday Loan Work?
With a payday loan, the borrower only needs to fill out a simple application form about the amount they make and the amount they need. The payday loan process usually involves a speedy decision, and if approved, the lender then sends the funds by depositing them into the borrower's account. The borrower's repayments will then be automatically deducted from their account on their paydays. This saves the borrower from any more hassle. The payday loan company may verify the borrower's employment and require supporting documents such as Photo ID, a selfie with Photo ID, Proof of Address and Bank Statements.
Are Payday Loans Expensive?
One of the most common myths about payday loans is that they're extremely expensive. This comes from a misunderstanding about how the percentage rates work. Lenders need to show percentage rates at an annual rate, but annual rates need to be converted to a daily rate to understand how much it will cost. This means the actual amount of interest is calculated on daily basis and you know exactly how much to repay back. In addition to this, there are many reasons why a payday loan is the smarter financial choice than being late on monthly bills.
Landlords tend to charge a large amount for late rent, and so do some credit card companies and utilities companies. In addition to this, many utilities companies will cancel utilities and then ask a fee to reconnect the service as well as a large deposit to protect against future late payments. These fees add up, and don't take into account the damage to the person’s credit report.