Your Only Guide on How a Typical Payday Loan Works
It’s the last week of the month and your bank account is completely empty. You just need to make a quick run to the grocery store and pay a couple of pending bills and then you will be able to comfortably make it to the next month, to your next paycheck. The problem is the few days in between and not being able to finance urgent expenses.
The solution is a quick payday loan. This is a very useful financial service that few people aren’t aware of and don’t get the opportunity to use. Here is everything you need to know about how they work.
What Is It?
Payday loans are very short-term loans that can be acquired from banks and some select financial institutions. They are targeted towards employed people who need some extra cash while waiting for their paychecks. The rules and regulations regarding these loans vary by state. It also depends on your employment history and the nature of your job. However, there are also a few states where these loans are completely prohibited.
How Are They Used?
The process differs with each lender and where you are located. In some places you can apply online, in others you will have to visit the physical office to submit an application. How much you can borrow, what it will cost to borrow, and how much time you have to repay the payday loans will all depend on the local regulations and the rules that the specific lender has in place.
Once approved for the loan you can receive the money either in the form of cash or it can be deposited directly into your account. Generally, these loans are quite short-term so you will need to pay back the amount together with the service charges within a couple of weeks. Some localities have a maximum payback time of up to 31 days.
The Catch
The amount that you can borrow in this loan is usually quite small even if you have a good salary. These loans can also be extremely expensive to handle if you go over the payment date. In some cases, the charges on the loan amount can grow quickly to more than the loan itself. In recent times some legislative changes have been made to protect consumers from the astronomically high-interest rates on these loans.
For army personnel, the maximum interest rate is limited to 36% annually. However, for the general public, these loans can still be excruciatingly expensive. It can quickly drive a person into debt quicksand where they find they have to take out a second loan to pay back the first.
Eventually, the person is trapped under far more debt than the loan that they actually took out. Some lenders can also demand access to your bank account. This gives them the authority to charge you at will and puts the user at risk of being put under the pressure of overdraft charges when the lender tries to forcefully withdraw the amount. Lenders will go to any extent to get their money back and it can be very stressful for the user.