A Payday loan is one of the most popular types of loans. It is a short-term loan that can help you cover immediate cash needs until the next paycheck comes in. That is why, for borrowers, it is important to learn how to get the best payday loans in Nigeria.
Payday loans can be used to fund common family expenses like home improvement projects, wedding expenses, vacations and in some cases, even the purchase of land.
Payday loans are usually available from traditional banks, credit unions and online lending platforms. With some institutions, it is easy to apply for payday loans online, without having to visit a bank branch and the funds can be made available within a few hours.
How do you qualify for a payday loan?
Payday loans are some of the easiest to qualify for a short-term loan, all a borrower needs is to have a bank account in good standing. The payday borrower will also need to prove their income and have some form of identification.
Typically, a payday loan lender will not run a credit check or ask further questions. Since lenders do not check your credit score, many borrowers find themselves in a payday loan trap, unable to pay their debt within their repayment term.
How to access the best payday loans
When it comes to accessing the best payday loans, traditional financial institutions, or banks are often the first option for many. This is said to be good for borrowers with higher credit scores since banks may have stricter qualification requirements on minimum credit scores or income. They may also offer lower interest rates than other lenders. One added advantage of patronising banks is that most have their branches almost everywhere in the event that the borrower needs to make a physical appearance.
In recent times, credit unions have started to become popular in Nigeria. A credit union is a member-owned financial cooperative that is created and operated by members. Their mode of operation is to share profits with owners. Popularly called ‘cooperative’ credit unions also offer loan services to their members.
Today, credit unions are not only becoming more widely accessible, but they are also proving to be one of your best ways of getting personal or payday loans with lower rates and less rigid credit requirements for members.
Because they are member-owned nonprofits, they can be more generous than for-profit lenders when it comes to fees and interest rates.
With some credit unions, only members can apply for loans while others offer outsiders but with a member standing as surety.
When it comes to payday loans, online loan lenders can offer competitive rates, and easier credit requirements than banks and, sometimes, credit unions. They also boast of a much faster application process, with same-day funding possible.
Many online lenders look at more than just your credit history — your job history or banking activity, for example, may come into play — making them worth considering if you’re thinking about getting a loan but your credit score isn’t great.
Even if you do have decent credit, though, some online lenders offer lower interest rates and fees than traditional banks and credit unions, since they don’t have to cover the overhead costs of managing branch locations. Plus, the application process can be done fully online, so these lenders tend to offer a quick turnaround when it comes to approving and funding your loan.
Peer-to-peer or P2P lending is a method of debt financing that enables individuals to borrow and lend money without the use of an official financial institution as an intermediary. The loans are backed by individual or corporate investors.
Borrowers may have an easier time qualifying for a loan using P2P lenders since some will work with borrowers who have a limited credit history if they can demonstrate the potential to earn a high income or a willingness to pay. Such lenders also consider other factors, such as education, work history, bill payment history, and whatnot.
In cases where borrowers are struggling to get approved by banks, credit unions, or online lenders, the loan obtained from a peer-to-peer lender is likely to come with a higher interest rate.
Preparing to get a payday loan
In trying to obtain a payday loan, as a borrower, there are steps you can take to ensure that the process goes unhindered.
Listed below are some of the requirements and how you can meet them.
Check your credit score
Banks and other such institutions will only give you a payday loan if you meet their minimum credit standards, although there are lenders who will consider consumers with low scores. There are some who may even waiver it because repayment is tied to pay cheque and so is almost assured. However, it is important to know where you stand with your credit report as it may come up.
- Gather necessary document
When it comes to taking out a loan, proper documentation is always key. Most lenders will require you to provide certain documents to verify your identity and your income. These typically include; proof of employment and income, proof of residence, a government-issued form of identification, and/or a utility bill. While those are basic requirements, some lenders may require additional supporting documents.
Compare loan options
Loan offerings vary from institution to institution. As a borrower, it is important to compare all the options available. This you can do by researching a combination of banks, credit unions, online lenders, and peer-to-peer lenders available.
Other than interest rates, it is important to pay attention to the loan amount on offer, loan terms, additional fees associated with the loan as well as common loan fees including origination fees and prepayment fees.
Armed with this information, as a borrower, you can then make an informed decision that best meets your need.
Read the letter
As with any financial product, it is important that the borrower understands the fine print before signing a contract. Some of the things to look out for in the wording of the loan are the origination fees, fixed vs. variable interest rates as well as prepayment penalties.
While it’s rare, you may come across personal loan lenders that charge you a fee if you pay off your loan early.
Repaying a payday loan
Before obtaining a payday loan, one is typically required to either provide a post-dated cheque or grant authorisation to the lender to automatically debit the borrower’s account at an agreed date.
If you do not return, your lender might repay itself by depositing your check to your bank or credit union or withdrawing funds electronically from your account.
If you have taken out a loan online, you likely provided an ACH authorization for the lender to electronically access your checking account for repayment on the loan due date. So, while the way you repay a loan may depend on whether you took out a loan in a storefront or online, usually you provide the lender a way to repay itself the full amount as part of the loan application process.
Take important note
If you do decide that a payday loan is the right option for you, be sure to handle your debt responsibly. This will ensure that the next time you try to take out a loan, your account is not flagged for defaulting on your payment schedule.
It is also very important to be vigilant so as to guard against fraudulent lenders. Do your due diligence to ensure that the institution is a legitimate business, especially with online lenders.