Whether you’ve fallen on hard times or just need some extra cash to cover an unanticipated expense, there comes a time when many of us need to borrow money. There are different ways to do this, one of which is a payday loan.
It’s estimated that more than two million households take out payday loans each year. If payday loans are new to you, let’s take a closer look at what they are, the different types, and whether this is something that you may want to consider.
What is a Payday Loan?
A payday loan is generally a short-term, unsecured loan for $500 or less. It gets its name because you typically have to repay it the next time you get paid. Payday loans are paid two to four weeks after they were taken out.
Although the amount of the loan is usually low ($500 or less), there are fees attached to it that will also be due when the loan is due. These fees can be substantial; anywhere from $10-$30 for each $100 borrowed. Many states will set laws for the maximum amount that can be charged in fees.
It’s important to know that not all states allow payday lending. As of this writing, payday loans are not allowed in the following states:
- New Jersey
- New Mexico
- New York
- North Carolina
- West Virginia
- Washington, D.C.
There are several other states where payday loans are allowed but are heavily regulated. It’s best to check the laws where you live to see your state’s stance on payday loans.
A payday loan can be repaid with a post-dated check to cover the loan amount and fees or you can have it electronically debited from your account.
Types of Payday Loans
If you are considering a payday loan, you should know that there are different types, besides a basic payday loan, each with its own set of rules.
No Credit Check Payday Loans While you may assume that this type of payday loan means that there will absolutely be no check on your credit, it typically means that there will be a “soft check”. The lender may perform a basic check of your rating, but will not go through any of the major credit bureaus. The main thing to remember with these loans is that the check will not impact your credit rating and will only be visible to you.
Many people like these types of payday loans because they can get money quickly. The process typically entails filling out an application and getting your money.
Bad Credit Payday Loans As the name suggests, this type of payday loan is designed for people with bad credit. Those with a credit score of 600 or less may be considered to have bad credit. The highest credit rating is 800 and the lowest is 300.
Same-Day Online Payday Loans With these short-term payday loans, you can go online to fill out an application. Many times you will get your money the same day. To qualify you must meet the following criteria:
- Have good monthly income which you can verify
- Have an active email address
- Have a valid contact number
- Be able to produce a passport or driver’s license to confirm identity
- Have an open and active checking account
- Meet the minimum age requirement (this will vary depending on location)
As long as you meet all of the requirements your application will be reviewed in a matter of minutes, letting you know whether or not you’ve been approved.
Best Payday Loans Online
Many people who consider payday loans opt to do them online for the convenience factor. If you fall into this category, here are some of the best payday loan companies online:
Be sure to look into each company to see their requirements and to check their interest rates for the amount you’re applying for. This will give you the best deal for your situation.
How to Apply For a Payday Loan
Applying for a payday loan is fairly easy. You can either show up to a location in person or apply online. You must have the following to apply:
- Government Issued ID
- Social Security number
- Proof of income
- Active checking account
If you are applying in-person many places will require a personal check. If you are applying online you’ll have to have a valid e-mail address.
After meeting the requirements and filling out the application, it’s just a matter of waiting to see if you’re approved. Once you are, you can decide how you want the money delivered to you. Some people do it electronically while others prefer cash or check.
Pros and Cons of Getting a Payday Loan
There are several pros and cons to getting a payday loan. Consider all of them before making your decision.
- Quick money
- Little or no background check
- Easy to access and apply
- Few requirements
- Unsecured loan (lender can not seize property if you don’t pay)
- High-interest (some can charge as much as 36%)
- Due back fairly quickly
- Loan does not help you build credit even if you pay it back on time
- Easy to get caught in debt cycle if you roll over your payday loans
- You can get sued for the money you owe
Payday Loan Alternatives
The high-interest rate and quick turnaround time to repay the loan is enough for many people to look for payday alternatives. Here are a few to consider:
Traditional Personal Loan with a Co-signer If you choose a traditional personal loan you will have a lower interest rate and more time to repay the loan. You will likely need a cosigner if your credit is poor. This should be someone who you trust and who would support you if you couldn’t pay back the loan.
Taking out a traditional personal loan and repaying it on-time can help to improve your credit rating. If you can improve your credit rating, you’ll have more options if you need to borrow money in the future. You don’t want to default on these types of loans because that would negatively impact your co-signer.
Ask for an Extension You can ask your debtor for more time to make your payment. This is always an option rather than not making a payment. Some creditors will work with you if they know you are making an effort to be responsible.
Ask Friends or Family Some friends or family members may lend you money with little or no interest. If you go this route, you want to be sure to repay them. Not doing so can harm personal relationships.
Use a Credit Card If you have a credit card handy, you can use this to take care of your debt rather than seek a payday loan.
No matter where or who you are borrowing money from, always be responsible and never borrow more than you can repay. Doing so will put you in an endless cycle of debt that can nearly impossible to get out of.