Payday Loans Definition
A payday loan is a small, short-term loan with high interest rates and additional fees. A standard payday advance loan term is less than a month long, as borrowers are expected to repay the amount in full with their very next paycheck.
Sometimes you need cash fast, but a payday loan should be your last resort. Payday advance loans may be a quick and easy way to get the money you need when you need it, but these loans usually come with terribly high interest rates and additional fees and penalties.
If you have recently been thrown into a difficult financial situation, and the only way to keep your head above water is to borrow money, may we suggest a fast cash loan instead? Fast cash loans are often more flexible and cost-effective than payday loans.
How Do Payday Loans Work?
There’s a good chance that you may have heard some negative things about payday advance loans. How do payday loans work and why do they have such a risky reputation? We’re glad you asked. We’ve broken down the typical lending process into 5 steps.
- You can submit a request for a payday loan online or by visiting a lending office.
- If you are approved for a payday loan, you will receive your funds in the form of a check, cash, a prepaid debit card, or an electronic deposit to your bank account.
- Before you are granted your loan, however, most lenders will require secured repayment to ensure that you repay the loan on time. This usually takes the form of a post-dated check for the entire loan balance (plus fees and interest) or authorization to electronically debit the funds from your bank account.
- You must repay the loan in one lump sum on the due date that you and your lender agreed upon. This is usually when you receive your next paycheck, or any other kind of supplemental income (social security, pension, child support, etc.).
- If you can’t repay the loan on the designated due date, chances are your lender will cash the check or withdraw the amount with no regard for your other financial obligations. Depending on the laws in your state, lenders may be willing to work out a rollover plan or an extended loan term—but not without costly consequences.
Things to Consider Before Taking Out a Payday Advance Loan
If you’re in a serious bind and you’re desperate for cash, you may be thinking about getting a payday loan. Before you submit a request, there are a few things that you should know.
Payday Loans Are Small
The average amount of payday advance loans is $500. It’s not likely that you’ll find a payday loan for more than this amount, as it is a standardized cap in most states. If you’re in need of a larger loan to pay for a costly financial emergency, such as unexpected medical bills or automotive repairs, you may want to consider quick cash loans as an alternative.
Payday Loans Cost Money
Payday loans come with fees and interest rates that can add a lot more to the amount you will be required to pay back to the lender. The average cost of a payday loan is between $10 and $30 for every $100 borrowed. So, if you were borrowing $500 with a typical lender’s fee of $20, your total amount to repay would be $600.
Loan Terms Are Short
The short loan term is what most defines a payday loan. These short-term loans are almost always required to be repaid within two to four weeks, usually around your next pay day. These small loans are intended to provide you with the money you need only until you receive your next paycheck.
It All Depends On Where You Live
Because of the remarkably high interest rates and rigid repayment terms, many states enforce caps on fees, interest rates, and loan sizes. You’ll find that the conditions may vary depending on where you live, so it’s wise to do your research before submitting a request.
Georgia prohibits payday loans altogether, while other states such as New York and New Jersey limit payday loan interest rates to 25-30%. More than half of the United States authorizes high-cost payday lending. You can find out what your state’s payday lending regulations are with this Payday Loan State Consumer Information.
A Better Financial Future
At PersonalLoans.com, we provide consumers with a convenient online loan request process that connects you with a whole network of reputable lenders. Learn more about our easy loan request process and how you can secure a better financial future for yourself with the tools and resources on our website.