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A guide on payday advance loans – Is it the best option for you?

Payday AdvanceAre you strapped in cash and need money for car repairs? A few days to your payday but you have run out of food in the fridge? Or you are faced with an emergency situation that needs instant funding? Most people request for loans when they are in desperate need of money. It is a fast and easy way to ensure you get cash within a limited period of time. In most cases, individuals request for payday advance, thinking that they can always be able to repay the money back within the agreed upon time limit.

However, you may realize that your monthly expenses exceed your income, leaving you with no amount left to repay the loan. The only available option would be to roll over the loan (which will attract an extra interest loan), or request for another loan. Before requesting for a payday loan, it is important that you first analyze your financial situation to ensure that you are able to repay the loan on time. Otherwise, you will, sooner or later, find yourself in a debt spiral.

Payday loans, also referred to as cash advance are short-term loans offered to borrowers who are in urgent need of cash. The loans are among the easiest ways to access funds for borrowers who need short-term financial solution. Most lenders will require you to repay the loan on your next payday. When the loan has matured, the total amount owed, which includes the principle and the total interest is directly debited from the borrower’s bank account.

What are typical repayments?

Payday AdvancePayday lending is popular among borrowers due to the fast approval rate. Borrowers are also not required to put down any asset as collateral. Some payday lenders can also advance the money for borrowers with poor credit. However, you need to have a consistent source of income for you to be eligible for a payday loan. You can also apply for a payday advance online and have your money approved without necessarily visiting a physical location. The maximum amount that a borrower is eligible to apply for is determined by the state department of business oversight. Since no asset is issued as guarantee of payment for a payday advance, lenders tend to charge a higher interest on the loans. If the borrower does not repay the loan on time, there is an option for the debt to be rolled over to the following month. But you may end up attracting a higher interest rate, making the loan expensive. Remember, avoid taking a payday loan if you cannot repay the debt on time.

Effect of payday loans on credit rating

Taking out a payday loan can be the best option for people who need quick funding. But at times, borrowers can be worried that applying for a payday loan can end up affecting their future credit rating. But just like any other loan, repaying the loan on time will help boost your credit score. However, it is important to note that even if making timely repayments and complying with the loan terms will not affect your credit rating, it may not be wise to request for the loan if you intend to apply for a mortgage or any other huge borrowing in the near future. At times, taking out a payday loan can indicate to the lender that you have money management issues, and they may deny you a larger loan.

Who uses payday loans?

Anyone in need of financial flexibility can apply for a payday advance. Typically, a payday loan borrower is required to be above the age of 18, be on full-time employment or receive a consistent income in their bank account.

Are payday loans safe?

Just like any other type of loan, payday loans should be used for productive purposes. The loans should also be used for short-term funding. If you need cash to cater for long term financial solutions, it is important that you consider other types of loans which have lower interest rates. When applying for a payday loan, borrowers are also advised to go through the terms and conditions of the loan. Besides, ensure that your monthly income is enough to repay the loan and cater for your monthly expenses. Defaulting payments will not only have a negative effect on your credit score, but you will also risk not getting a loan in future.

Features of payday loans

Payday loans come with an advantage, especially when you need cash to cater for emergency situations. Although you may be on permanent employment and your monthly salary is enough to cater for your financial needs, emergencies may arise, and this will require you to look for an alternative funding source. Most people apply for payday loans to fill a gap in their financial obligations. Here are some of the features that make payday loans attractive.

  • Less stringent policy
    Compared to traditional borrowing, payday loan lenders do not impose strict requirements when requesting for the loan. If you apply for a loan in a bank for instance, you will be required to issue an asset as collateral for the loan to be approved. But not every borrower has a high valued asset to issue as collateral. However, payday loans are unsecured and no security is required as guarantee of payment. Borrowers are only required to have a valid bank account and be on permanent employment for their loan to be approved.
  • Fast processing
    Traditional lending requires borrowers to go through long documentation processes for them to access a loan. But with payday loans, you only need to meet all the criteria, submit the required documents and have your loan approved. There are also online payday loans available, making the application process much easier and flexible. Most lenders approve payday loans within 24 hours.
  • No credit check
    Most lenders are reluctant to offer advances to borrowers with poor credit. But with payday loan, lenders do not focus on the credit history of the borrower. When applying for a loan from a financial institution, one of the requirements is for you to have a good credit rating. Otherwise, there will be less chances of your loan being approved. This makes payday loans a perfect alternative for borrowers who do not have an attractive credit rating.

Important considerations when applying for a payday loans

Payday Advance

Due to the high interest rates incurred in cash advance, the loans are only meant to cater for short-term financing. Requesting for payday loans on a regular basis can turn out to be expensive. Payday loan lenders also have varied interest rates and loan terms. Before applying for the loan, it is important that you compare rates from different lenders for you to come up with a cheaper loan to meet your short term financial needs. Borrowers are also advised to only apply for payday loans when they are sure to make repayments on time. This is because late payments will attract extra fees. The debt can also be rolled over to your next payday, making the loan very costly.

Next steps

Before applying for payday loans, it is important that you first analyze your financial needs to determine if the loan is the best option for you. One important question you need to ask is, can you afford to make payments on time without struggling with your monthly budget? If your answer is no, then you should reconsider your decision of taking out a payday loan. But if you feel that the loan is the only alternative left to cater for your immediate financial needs, then you can seek advice from a debt advice agency before signing the contract.

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