Are you stuck with paying your bills and in need of urgent assistance? As a salary earner, payday loans can always come to your rescue. However, before deciding on taking that route, it is important to put together all the information you need to know about payday loans.
In the past, a borrower was required to write a postdated check to the lender for the payday salary, hence the term, payday loan. In today’s financial world where everything has been digitised, payday loans may not necessarily be linked to a borrower’s payday.
The loans are also sometimes referred to as ‘cash advances, with traditional loans, borrowers receive a lump sum and then start to make payments back over a set amount of time. On the other hand, with payday loans, the full amount comes due all at once, including the interest and fees.
Common Features Of A Payday Loan
- Payday loans usually come in small amounts, and some financial institutions may set a limit on the loan size depending on the borrower’s salary. It is important to note that as limits vary across platforms, so does the interest rate.
- A payday loan is repaid in a single payment which is usually on the borrower’s next payday. In some cases, it is paid when income is received from another source, especially in situations where the borrower defaults.
- The due date for a payday loan is typically two to four weeks from the date the loan was made. The specific due date is set in the payday loan agreement.
- In some cases, to repay the loan, the borrower writes a post-dated check for the full balance, including fees. In other cases, which is what applies mostly in Nigeria, the lender is given authorization to electronically debit the funds from the borrower’s bank, credit union, or prepaid card account. That way, repayment is automated.
- One’s ability to repay the loan while meeting your other financial obligations is generally not considered by a payday lender.
- In taking the loan, funds may be provided to the borrower by cash, cheque, electronically deposited into your account, or loaded on a prepaid debit card.
- Interest rates for payday loans are much higher compared to traditional loans.
Benefits Of Payday Loans
Many have argued that payday loans may be of disadvantage but at a closer look, one will find that there are quite a number of benefits attached to them.
Designed purely for the short term and with higher interest rates than many forms of borrowing. This is even more given the fact that it is designed for short-term repayment thereby accruing a higher interest.
As an income earner, payday loans afford you the luxury of knowing exactly when and how the repayment can be made.
Below are other benefits of taking a payday loan.
1. Suitable for people with bad credit
A person with a poor credit history might struggle to borrow money. Most providers of traditional consumer finance options will reject any high-risk applications, and this includes individuals with bad credit. However, with payday loans, companies do stringent affordability checks but have compensated for the high level of risk by charging higher levels of interest than other lenders. As a result, they can often accept loan applications that other types of lenders will not.
2. Easy application process
In most cases, the application process for getting a payday loan is done entirely online. In such situations, applying for a credit involves nothing more than completing an online form with personal, financial, and employment details.
In one or two exceptions, further types of evidence may need to be provided. Lenders usually assure that these details are secure and will not be passed on to third parties unless specified, but they will be used by the lender to make a quick decision.
3. Early repayments can help
Many lenders send payment reminders by text or email as is customary with lending institutions. This helps borrowers ensure that they have money in their accounts to cover payments that are taken automatically. Also, some borrowers promise a reduction in interest rates if the borrowers can pay ahead of schedule.
4. Good for emergencies
As earlier stated, sometimes, emergencies spring up on you and you don’t need to stay stuck. These emergencies can be anything; from a broken down vehicle to a medical need. As a result of the urgency, one may not have time to wait for a traditional form of borrowing to be approved. As well as offering online forms to borrowers the headache of making a physical trip, many lenders can transfer the money to your account within minutes of a successful application.
5. No restrictions
Payday loans do not come with restrictions. That means borrowers can use the funds for anything that they need it for. Despite this fact, it is strongly recommended that individuals only take the payday route for short-term financial needs or absolute life essentials and emergencies.
6. Save you money
With traditional loans, such elements as default fees, overdraft fees, bounced cheques and other charges can quickly mount up.One may reduce the amount they get to pay overall as a result of taking out a payday loan to cover expenses that cannot be met immediately.
It is advisable that borrowers make certain that they can repay the loan by the end of its term.
7. Available at all times
Payday loans can be made available outside traditional banking hours because the transaction is mostly conducted online. The online application process provides the opportunity to borrow money at any time of the day, at night, or even at weekends.
Borrowers can apply for a loan from anywhere with an internet connection and usually get the funds within 24 hours. Payday loans usually attract little or no paperwork hassles.
The same goes for repayment. It can be done on any day of the week or at any time of the day.
8. The borrower has complete control
In applying for a payday loan, the borrower is given the option of choosing the amount of money they intend to borrow and the repayment terms. In most cases, the borrower is provided with clear information about the overall repayment amount, any monthly installments (if your loan is to last for longer than a month), and of course, repayment dates.
The borrower can then adjust the amount they are collecting, or the length of your loan term, to meet their repayment abilities.
9. No Credit Checks
Unlike other loans, payday loans do not necessarily require credit checks. This comes in handy for those who have bad credit or no credit at all. As long as borrowers the other requirements, they need not worry about having good credit.
Other Information To Take Note Of
There seems to be a surge in the number of platforms offering loan services today with most of them parading as online lenders. As a borrower, it is important to make certain that the platform you are patronising is authentic.
Also, borrowers, especially those opting for payday loans, are advised to take into account their monthly payments and how much they will be required to part with. That way, borrowers are saved from entering into the cycle of unending loans.
Hidden fees are a thing with some lending platforms. Before taking out a loan, borrowers are advised to read through the terms and conditions to be sure there are no hidden charges or penalties.
