How Do Payday loans Work?
There’s nothing worse than being in urgent need of cash and not being able to get a loan. Or, perhaps you could get a loan, but as the application process for most loans is rather lengthy, by the time you get the money, you no longer need it. In this scenario, payday loans could be exactly what you need. But, what exactly are payday loans and how do they work?
Introducing Payday Loans and Their Benefits
In essence, payday loans are short-term loans – as the name already entails. They are created specifically for financial emergencies. That is to say, if you’re temporary out of money, a payday loan can help you get through the rough spot. The thing with this type of financing is that you have to repay the amount of money at your next paycheck.
Now, what if you don’t have the money at that time? In this scenario, you have the option of rolling it over, by prolonging the term of the loan. That means you won’t have to pay right away. The drawback, however, is that the fees will continue accumulating. The longer you wait to repay the loan, the higher the sum you’ll end up paying.
Payday loans are also referred to as no credit check loans or bad credit loans. This is, perhaps, what makes this form of financing so appealing to people struggling with financial problems. In comparison with standard loans, getting approved for a payday loan is easy and time effective. If you need money without prior notice, a payday loan might be your only solution.
What Is the Real Cost of Payday Loans?
It all seems rather appealing – doesn’t it? Having the option of getting a loan when traditional lenders aren’t willing to isdefinitely enticing – especially if you need money ASAP. Nonetheless, in spite of the evident advantages associated with payday loans, the pitfalls shouldn’t be overlooked.
To be more precise, online payday loan can be quite expensive. The annual percentage rate (APR) is one of the highest, in comparison with other types of loans. Let’s look at an example, shall we? You might end up paying a $20 fee if you’re borrowing $100 for roughly two weeks. Some borrowers have paid up to 436% APR on payday loans.
Pitfalls You Shouldn’t Overlook
Of course, the primary drawback is the cost of payday loans. If you do manage to repay the sum at your next paycheck, then you should be on the right path. Nevertheless, if you’re sinking in debt and you are unable to do that, getting a payday loan could worsen your financial situation. The interest rate is high, and the expenses add up over time if you cannot make the repayments.
All in All
Overall, payday loans can be really helpful. In fact, this form of financing is a great solution to short-term problems. If you have an urgent car repair or anything of the kind, getting a payday loan would make sense. But as a long-term strategy, this isn’t the way to go, as you’ll end up sinking in debt.