Understanding payday loan is something that you must do before you jump into its application and get one. Like other types of loans, it has its pros and cons. One of the good things about it and also one thing that attracts many people to apply for a payday loan is its fast processing. Those who need emergency cash find this as a good option because they could get the money they need quickly. Moreover, many payday loan providers also do not require a credit check, which is a good thing for those who have a bad credit score, as there’s still a big chance that their loan would be approved. Even those who do credit check still give out loans even to those who don’t have a good score. However, the big disadvantage is that the interest rate is pretty high.
How Payday Loan Works
Payday loan is a type of loan that’s usually given in a small amount. Lenders typically gives out less than a thousand dollar to the borrowers. Also, as the term suggests, it’s expected to be paid on the next payout. Those who are short of cash due to various reasons consider this so they could make the ends meet until the next paycheck arrives. While it’s expected to be paid on the next payout, lenders may still allow you to extend the payment and pay a minimum amount, although this could also mean that you would be paying for more interest.
This loan could be attractive to those with bad credit score and those who need immediate cash, especially loans could be approved only within a few hours or days. However, as mentioned, the interest rate can be pretty high. The average annual percentage rate of payday loans is 391%. However, this could even reach as high as more than two thousand percent!
Alternatives to Payday Loan
Since payday loans have very high interest rates, you may want to consider other alternatives for you to get the money that you need. One of these is by checking the available short term loans offered by credit unions and banks. These options have lower interest rate than regular payday loans. More and more credit unions and banks are providing this to offer more convenient solutions to their clients. You may also consider getting a credit card if you don’t have one yet. However, you must use this responsibly or you may find yourself drowning in debt.
Another way to get the money that you need is by selling things that you don’t need anymore. You might be surprised that unused things have accumulated throughout the years and you were not even aware of it. It’s time for some clean up and separate the ones that you no longer need. Not only would you earn money, but this would also free up space and declutter your home.
In order to avoid running out of cash, reevaluate your budget and cut down on areas that you could in order to save for your emergency funds. This way, you could prevent having to resort to applying for a payday loan or other types of loans.
Featured and 1st image courtesy of Stuart Miles / freedigitalphotos.net
2nd image by ResaJoan (Own work) [CC0], via Wikimedia Commons