Payday loans are short-term loans that are here to help you in case of emergencies. They are created to help you when your pay-outs are closed for the month. But, unfortunately not all understand the necessity of the payday loans and use them in bad shape and end up paying huge fees and finally declare themselves bankrupt.
Here is a brief about payday loans that can help you in making decisions right. Now you know that payday loans are short loans that are offered, read on more about how they work, how they are different from bank loans and so on.
Their Features and Working Strategy:
The small amount that no bank gives:
Yes, payday loans are usually the small amounts that come as a shortage in the due course after our salary arrives, that ranges from 350 to 1000$ or Euros or pounds. But the common amount is 500$ or Euros, that helps many in both paying back and in financial crunches. This small money no bank gives, and nobody else gives. You can rely on your friend, but how many times is the worry!!
Short-term in the real sense:
In stock markets and in banking language short term is referred to as 1-3years (mostly 3 years). But here, the short-term in for about 15 days, or at the maximum one month. Normally you will be supposed to pay the due on your next pay date, be it in 5 days or 30 days, but you need to pay on your cheque date. While taking data, most of the people spend their salaries by 15 days, only a very few finish it up by 5 days, and remaining fall short of money only in the final 5 days count.
No Background Check:
Any bank would surely do a credit score check to find out about you, before giving you any kind of loan. But, here there is no such concept. To get a bank loan sanctioned, you need to undergo a lot of procedures and get some surety for your money.
Here, all you need to have is a bank account (an active one), pay-slip(mandatory) and your ID card (to confirm that you are an adult above 18years). The best part is, you don't need to run around, just upload the documents and within minutes your account is credited with the required loan amount. So, this is very helpful for the desperate people, who never think twice before taking a loan.
Here in this loan, there is no monthly torture that comes up!! You don't need to pay up in bits and finally look at still a huge picture, where most of your money would go in interest. Here, it's a one-time payment back, or roll over.
Rollover means, that the loan amount is rolled over to be paid in the next pay cycle, but with the interest or late fees added up.
Interest rates are too high:
Actually, since this works only for 15 days most of the customers overlook the long-term money that is a loss for them, they only look smaller amounts that are charged to them, but for 15 days alone.
Like a $500 borrowed might be adding up the interest of nearly 75-100$, so it seems a small amount. But, calculate the same for a month and a year, you will realize that the interest rate is too high. But you will be too late to realize, as you would have rolled over your payment cycle and still coughing up higher for the delayed payment.
Automatic Transfer of money:
When there is a payday loan taken by you; you handover a cheque that is duly signed and gives them an authority to take the amount as per the policy from your account automatically on the day your payment arrives.
In case you don't reply back, they will utilize this cheque and encash or draw directly from your account.
No bank has this option, renewal of the existing loan. Nobody gives you extra time to pay your money, but this type of loan does. So, if you know that you won't be able to pay the money back in time, you can opt for renewable before this last date, and after paying an amount equal to interest fee is collected and renewed for another 2 weeks to one month.
Well, in some states of the US, this is not allowed. But, don't worry, there is an alternative method, you can opt for another loan and pay this back.
Impacts of these loans:
Well wondering that these loans are just like an alternative to loans extended by friends and family, so that doesn't impact your score!!! You just need to think again, in the right direction. The amount that you take from any agency, registered, where you place your SSN number and all other personal details, your credit log is captured.
This reflects in your credit card reports as positive or negative, based on your transaction. Well, this is another reason why most people turn to payday loans, thinking that credit score is not impacted with such smaller loans, which is a myth and a fake imagination.
Huge debt cycle:
Yes, though it seems a small amount initially, this becomes a never-ending story in the longer run! You take more debts to clear another debt!! Well, if you are a wise man, or woman, surely you won't take loans, according to your pay scales; if you had good financial planning. So, the one single debt that you took, will lead to more to clear the older ones and ultimately paying up huge interest fees.
Better financial planning:
You can avoid such last minute hasty decisions by saving money for hard days, keeping financial planning in place, budgeting will avoid such problems. Ensure you take insurance for yourself and your dependents and renew them timely, which will mostly close the chance of borrowing.
If you need to take, then decide on what commitment can be omitted next month to have this in place, again the financial planning!!