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Payday loans are perhaps one of the most popular types of loan. It’s known for its convenience, speed, and simplicity. But like other debts, it has several drawbacks that you should watch out for before sending a loan application.
In this guide, you’ll know what payday loans are and how they work.
What Are Payday Loans?
A payday loan is a kind of loan that offers quick financial relief. You are provided with a decent amount you can use on minor expenses and it is payable after two weeks or on your next payday. Compared to banks and traditional lending facilities, the lender is less stern when it comes to qualification and almost anyone, even those with a bad credit remark, may be approved. The best part is: the loan provider releases a decision on the same day or in just a matter of hours.
But There are Drawbacks
Since it is unsecured and often, it approves bad credit borrowers, the interest rate charged to the loan is high. This makes the loan very expensive and considering that it should be settled within two weeks, it makes most borrowers problematic. After all, they are not giving back the principal amount but the exorbitant interest as well.
How a Payday Loan Works
As the name suggests, the loan is settled on the borrowers next payday, although it may be extended for a month or so depending on the lender. To get a loan, all you need to do is fill out a loan application online with necessary details such as your name, contact number, employment details, bank account, etc.
The lender will then verify all the information provided and you may receive a call or email to proceed with this. It will only take a matter of hours to complete this and once approved, the money is sent to your bank account asap.
When it comes to repaying the loan, you can either give a postdated check or grant the lender access to your bank account so they can take out the repayment on the agreed repayment date.
Payday loans are short-term unsecured loans that are meant to tide borrowers over for whatever financial shortage they are experiencing until their next payday. Generally aimed for borrowers who usually have a hard time getting a loan at other traditional sources, payday loans have become quite a popular option among many bad credit borrowers over the years.
Payday loans are also known for the hefty borrowing costs that are attached to them. Despite this, many people are still crowding over payday lender’s facilities since they do provide an easier and quicker access to cash- something that low credit customers won’t likely avail of if they'd refer to banks and other mainstream lenders.
Another distinct characteristic of payday loans is that they are short-term loans. This means that they will need to be paid off on the borrower’s next payday or at the end of the month. Due to the high interest rates attached to these loans, borrowers need to make sure that it is paid off on time or the debt will increase, making it even harder for them to get out of it.
Are They Legal?
Payday loans are legal. Despite the fact that they are often considered by some as usury lenders due to the high interest rates associated with them, payday lenders are recognised lenders. There is a reason why they charge the kind of rates that they do. The fact that they have to mainly deal with borrowers that are struggling financially is in itself already a huge risk. They usually try to compensate for this by charging hefty sums.
As long as they are paid off on time, payday loans are not at all that bad. The easy way in which they can be availed of along with fast funding means that they can be quite the tool during financial emergencies. Otherwise, you’ll be putting yourself at risk of incurring more debt and even possibly falling into a debt trap.
How To Apply?
Applying for an unsecured loan is so easy. All you need to do is to select a loan of your choice. Provide your information in an online form provided on the lender’s website. Once you have completed all the necessary steps, just wait for a confirmation for your approval. It will only take a few minutes to get the results. Once it is in, you can get your money directly deposited to your account.
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