All About Payday loans!
We have heard a lot about them, isn'tit!! Thereare many controversies against and many people calling it a boon! But, what is true? Perceptions may change and can, but the fact remains the same, it can never change, inspite of any circumstances.
Payday loans are something most of them love to buy! As the same says, it's a loan taken to adjust the pay checks received, the loan taken to complete the commitments that went spoilsport with a bad paycheck.
It's a kind of debt that is actually dangerous, and deadly too. Thinkingwhy? Well, read on further to know about this!
What is exactly payday loan?
In common terms, it's a short-termloan, whichis aimed to clear the gap between monthly commitments and cheques.
Many times, due to over leaves, insufficient funds or an additional commitment in a month leads to crunch at the beginning of the month itself.
Rules toobtain a payday loan?
Well, there areno hard and fast rules on this, easily accessible by all, that's what manyads say and hence the number of people availing this is higher.
There are no specific rules imposed on this type of loan, as to the fixed interest rate and its guidelines for late payments. This has led to series of issues, where the loan giver has implemented interest upto 400% on the amount taken. If this becomes a trend, then there will none re-payer, as the interest rate is way too high!!
But, after many issues, the association for financial board got interfered and put some rules to check a person'srepay capacity and offer amount according to his/her paying capacity.
Working onthe loan strategy:
So, need to know how this actually works! Let's consider this asan examplelike you have an emergency situation, your car has got an issue and you need say $500. So, you can directly approach the lender online. After entering all the personal information about you, you must enter the amount you need, and along with it, accept to give back a service charge of 40-50$, based on each lender.
You must be giving a post-datedcheque or your banking information needs to be pinnedso that the transfer can happen directly. You have 15 days' time, at the end of 15thday, you are supposed to pay back the loan, failing which will attract late penalty on the 540/550$.
To whom it attracts and is benefited?
Well, in the USmost of the people rely on this scheme to meet their monthlycommitments. Anyone under a payment slab has the capability to get a payday loan, is eligible. Its seen as an alternativeto the credit cards and other credit loan schemes.
The most payday loan users are:
People whose income is below 40k$ per annum
Divorceeor single or single parent
Student who hasn't completed graduation
Alright, let'ssee the benefits this widely used schemeoffers.
Easy and quick access to small loans
A temporary solution to emergency needs
No checks or security check done, usually, which eliminates the option of no money
Well, for every good thing, there must be a downside too. so, let'stake a look at the downside too:
Repayment on time
The Latepenalty is usually very high.
It'shighly expensive to utilise this scheme as often as possible. The interestthat you end up paying is many times higher than the actual money that you borrowed
It's a huge debt in the longer termor using it often for a long period
Better alternative options:
Though they are given only on complete security check, it's always more and much better than payday loans. The interest that you pay is minimum 9% and at the most,a compounded interest totalling to 30% not beyond, whereasthe payday loan is charging you 400% of interest. Since the principal is smaller, you don't realise.
Take up a personal loan:
This is the best option. As the interest rate is low and the payment has more time and flexibility is better.
Take an advance from your employer
Utilise the overdraft strategy
Take a small personal loan
Make use of your savings account and borrow money there
Common Myths Associated With Payday Loans And The Truth In Them!
When it comes to getting a loan there are multiple sources to choose from. Each type of loan has its own pros and cons. The situation in which you are applying for a loan, the purpose, loan amount required, repayment capacity and other such factors would help you pick a loan. And the factors like your regular income, credit history, credit card reports, would determine whether you are eligible for the loan. Finally, it is in the hands of the lender to decide whether or not to approve your loan. If you are in a situation where delays in receiving the funds cannot be tolerated if you cannot proceed with lengthy processes of preparing and submitting documents payday loans are your easiest options.
There are now numerous lenders who process instant payday loans with absolute ease. But the moment you talk about payday loan there might be several people that advise you against it. Here are some of the common misconceptions associated with payday loans-
- You would enter into an infinite debt loop
Payday loans have a bad reputation because of a few borrowers who get into a vicious cycle of choosing loan after loan. Payday loans are simple and they are quick. You can apply for a very large loan amount that is influenced by your income. When you repay the loan quickly then the lender would be ready to increase the loan amount the next time you apply for a payday loan. This flexibility and convenience sometimes leave people getting too dependent on payday loans. So even if there is a temporary shortage of money that can be averted in multiple other ways they end up choosing payday loans. Too many loans might make the repayment difficult and have a bad influence on the credit score. But all this happens only if the borrower loses his control and keeps applying for multiple loans in succession. As long as you limit the number of payday loans you apply for and as long as you keep strict conditions for the purpose for which you choose these loans, they are pretty safe.
- Payday loans are illegal
This fact is not entirely a misconception as there is some truth attached to it. There are some states where lending payday loans are prohibited by the law. These states take into consideration the debt cycles of the residents and impose laws to curb the chances of falling prey to debts. So before you choose a payday loan lender to make sure that payday loans are legal in your region. There are several places where payday lending is legal. In such states and countries, there are laws surrounding the policies of lending payday loans. These policies prevent lenders from placing exorbitant interest rates on payday loans.
- These are loans designed to benefit the lenders alone
It is true that payday lenders do make a lot of money with the help of payday loans. Given that these loans bear larger interest rates than most other loans the lenders have various benefits in lending this type of loan. But the law protects the borrowers as well. So for all those who have a tough time qualifying for other types of loans payday loans are timely saviors to meet quick financial needs. These lenders do not worry about the credit history and they do not take too much time to approve or process the loan. There are very few other loans that offer this comfort. There are many more such benefits linked with payday loans. So the borrowers to benefit a great deal from payday loans.
- These are the most expensive loans
It is partly true as these loans do have interest rates higher than most other loans. But if you choose a lender who is licensed by the legal authorities you can be sure that the interest rate charged is within the permitted limit. There are, in fact, various other loans that come with higher interest rates and complicated repayment conditions. The fact that payday loans are short-term loans cannot be forgotten. So the financial burden is only to be held for a brief interval.
- Lenders try to trap the poor
There is one other prevalent notion that payday loan lenders try and trap the poor. Though applying and obtaining a payday loan is very simple it is solely granted on the basis of the income. Without a valid income proof, these loans are not furnished. As long as the borrower doesn't forge his income proofs the lender would only grant an amount that is repayable for the income slab. It is true that there is numerous payday loan lenders who trap people into never-ending debts. They might provide incentives or make it difficult to close an existing loan. But there are numerous genuine lending institutions. These stick with the law and have transparent processes that make it easy for the borrowers to understand the loan and come out of it.
- Debt collection process is scary
Well, that is probably the case with most types of loans. The actual methods used depends on the lender and the debt collection agency being approached. So whether it is a payday loan or any other type of loan for that matter, timely payment of the dues would keep the borrower safe from the daunts issued by debt collection agencies. Some payday lenders even have flexible options to assist you in the repayment of the loan. As long as you plan ahead and save ahead you do not have to worry about being threatened by the debt collection agents.
Irrespective of the loan amount opted for and irrespective of the objectives of the loan as long as you target timely repayment of payday loans are safe options. When you choose a lender to make sure that you dig into the background and understand the reputation of the lender. Look for reviews from actual users so that you would get to know about the actual processes involved. Finally be clear about the terms and conditions imposed on the loan.