Consumer loans are very common today. You may have applied for such loans before or someone you know might have. This type of credit allows a person to borrow some amount of money from a lender.
There are different consumer loans available today. Each type meets a particular purpose and comes with specific interest rates and terms. Knowing how each of these credit options works can help you choose the one that fits you best. One such consumer credit you might want to consider is the payday loan.
A payday loan is designed to cover short-term costs. It is unsecured so you can get one even without collateral. But the catch is that this credit may have high-interest rates and fees. Sometimes, this can depend on the provider you choose.
You might wonder: Should I go for payday loans? What are their features? How can I apply for them? What should I consider before going for them? And what benefits do these loans have? This article will discuss each of these questions.
Features of a Payday Loan
The following are some features:
- It comes in small amounts and many countries set limits to the amount one can borrow.
- It comes with higher interest rates.
- You receive disbursement of the loan by check or cash or electronically deposited into your bank account depending on whatever option the lender prefers.
- The loan is normally repaid in one single payment. The due date is between two to four weeks after the credit was made.
- To repay the debt, you will write a check for the full payment or if it is an online lender, you will have provided the company with authorization to electronically debit the amount from your bank account.
If you would like to know more about the features of this credit, check here: https://www.consumerfinance.gov/
How to Apply for a Payday Loan
The following are some steps to take when applying for this type of credit:
Step One: Research Available Lenders
Check for available lenders around you or online. Online payday loans are quite common and faster to get. If you decide to go for such, make sure you carry out research on which lenders are available and reputable.
Step Two: Fill Out an Application
The lender will request for important information about you and your employer. Here are some of the details the firm will ask for:
- You name
- Your home address
- Your date of birth
- Your phone number
- Email address
- A valid ID card
- Your employment status
- How much you earn
- The amount you want to borrow
- The duration
- Your account number
It is vital to give honest information about each detail. Since payday loans are given without collateral, the information you give to the lender will help them process your application faster.
Step Three: Wait for Approval
You might receive approval in a few hours or 24 hours after applying. You will be sent an agreement mail that you must read through before signing.
Step Four: Receive the Money within 24 Hours
Payday loans are paid faster than other credit options. You can expect to receive the funds a few hours after your application is approved.
Factors to Keep in Mind before Applying for an Online Payday Loan
If you wish to cover an emergency expense with this credit, what are some factors you should keep in mind before applying? Here are some of them:
Understand Why You Need the Credit
Before you decide to go on with this venture, you need to understand why you need to do so. Payday loans are short-term and are not designed to be taken all the time. You should only go for them when you have emergencies. Do not think of them as a regular form of funding to use all the time. To learn more about other consumer loans to go for, you can read this article.
Know the Amount You Need
Another important factor to keep in mind is the amount of money you will need. Once you know the exact amount that will cover your urgent needs, you can now decide whether to go for a payday loan or not.
Keep Your Monthly Income in Mind
Would your paycheck be able to repay your debt? This is vital to keep in mind. You wouldn’t want to borrow an amount that your monthly salary will not cover. This can put you in financial distress and debt. To avoid this, make sure you keep your monthly income and financial status in mind when taking credit.
Consider the Hidden Fees
It is vital to understand the cost of applying for a payday loan. This is because there are so many hidden fees that some dishonest lenders might add to your bill. Some of these hidden fees might include:
- Appraisal fee
- Administration fee
- Processing fee
- Underwriting fee
- Origination fee
These hidden fees are not always noticeable. Hidden charges or fees are usually not included in the interest rate, but they are added to the repayment amount. You will find that this will increase the amount that you are expected to repay. It is wise to check for hidden fees before accepting a loan. A simple way to do this is to ask the lender to provide a breakdown of their charges before choosing their services.
Read Through the Fine Print Carefully
Always ensure that you read the terms of any loan agreement. Making a hasty decision and signing an agreement might have disastrous consequences. No lender will force you to accept a loan from their company so take your time to go through the agreement before accepting any.
Understand the Risks Involved
Another important factor you must also consider is the risks involved. If you don’t assess the risks carefully before getting a lån på dagen, you might end up regretting it. One of the benefits of the loan is that the lenders do not really care about your credit score. You might have a very poor credit score and you will still be given the loan. But this also comes at a price.
When you fail to repay your debt on time, your credit score will face long-term consequences. You might not be able to get loans with longer duration and lower interest rates.
Make Sure You Go for a Regulated Lender
There are so many fraudulent lenders out there. It is not uncommon to hear news about payday lenders harassing borrowers or pushing them into financial distress. For these reasons, it is wise to ensure that you borrow from a legal and regulated lender.
Make sure the credit provider is licensed and under the right regulatory authorities. If you want to know whether the lender you have in mind is licensed, you can check them up on the regulatory authorities’ website.
Understand How the Credit Affects Your Credit Score
Another thing to keep in mind is how payday loans can affect your credit score. They are easy to get but hard to pay back. Failure to promptly repay your debt can leave a dent on your credit score. Some other consumer loans lender like mortgage providers do not like to see this credit on your report even when you have repaid the debt.
Benefits of an Online Payday Loan
The following are some of the benefits:
It is Convenient
One of the benefits of this credit is the convenience attached to the application. You can apply for it from the comfort of your home, anywhere in the world. There is no physical paperwork involved. All you need to do is to fill out an application online with the required details and you are done.
It is Fast
Another benefit is that it is fast. The entire process involved, from filling out an application to getting an agreement takes 24 hours or less. You would get the money as soon as your application is approved. The loan is perfect for urgent emergencies.
There Would be No Credit Check
This is one of the best things about payday loans. The lenders do not check your credit report and score. Even if you have a bad credit score, you can still borrow some money from the provider.
You Can Borrow Funds for Any Reason
You are not limited to borrowing for emergencies alone. You can get the funds to offset a bill or make some repairs. There are no restrictions as to what you would use the money for.
There are No Prepayment Penalties
This is common in many consumer loans. You might be penalized for paying off your debt sooner than expected. But in the case of payday credit, you don’t have to worry about prepayment penalties. You can repay on time if you want to.
Payday loans are short-term unsecured consumer credit. They come with several benefits like convenience, no credit score checks, and speed, among others but it has certain risks. Before you apply for one, make sure you understand the risks involved. Also, ensure that you choose a reputable and regulated lender. This will make things easier and better for you.