Payday loans are well-known for instant cash needs. While it’s convenient, there might be some catch. If you’re currently facing some financial issues and are considering payday loans to deal with your emergency bills, here are a few things you need to know about them.
What Are Payday Loans?
Payday loans are cash advances that people can avail of for small amounts. It’s also popularly called online payday loans, designed for borrowers to pay on their next paycheck. Still, some issue loans to potential borrowers if they have access to repayment cash soon. This type of loan allows debtors to borrow the amount they will need at this instant, which makes it ideal for paying emergency bills.
The application process isn’t as complicated as other traditional loans, and some lenders are lenient with the requirements. It allows people with poor or no credit to apply as well.
Moreover, payday loans also come in different types. Potential borrowers can consider their options and find the best one that fits their situation: check-advance loans, deferred deposit loans, and cash-advance loans. These three are closely similar but differ in a few things. In general, these are payday loans, where the borrower will pay a fee to borrow money, regardless if it’s for a week or two.
Who Can Apply?
Applying for a payday loan can be an easy process if you understand what you need as an applicant. First, the borrower must be of legal age and can provide the legal documents. The prerequisites will allow lenders to assess whether the potential borrower can repay the loan in time.
If you’re planning to apply for a payday loan, you must start gathering the required documents as early as possible. Though it may vary depending on the lender, the following are the essentials that they will indeed look for.
- Valid ID. A valid identification card is any government-issued ID that shows your signature. Most payday lenders typically require this particular type of ID. In case you don’t have any, you should check their list to check out other options they might accept.
- Proof of Residency. Proof of residency is a document that shows your current address. You can submit a copy of your utility bills, mortgage statement, lease agreement, and others that you can check here.
- Proof of Income. It’s a crucial document that will significantly affect whether you’ll be approved for a loan. Proof of income will present that you have the means to repay the loan. So, you can submit your bank account statements or salary stubs.
- Active Bank Account. Most payday lenders require their borrowers to have an active savings or checking account. It’s because payday loan repayments are often automatically withdrawn from the accounts they submitted. It’s also where the loan will be directly deposited.
Is It Worth It?
You probably already know whether the payday loan is for you or not. However, if you still need more push to help you fully decide if it can help with your emergency bills, then here’s a brief list of the pros and cons of payday loans that you can look into.
- Easy Application. For emergencies, it’s ideal to apply for loans that can process your application efficiently. As mentioned, payday loans don’t have complicated requirements and have a straightforward application process. So you don’t have to worry about waiting for a long time. Still, the processing time varies by lender.
- Some Payday Lenders Are Ruthless. If a debtor fails to pay their loan on time, some payday lenders bully their debtors to pay their loans. That’s also why payday loans received a bad name due to harsh collection methods. On the brighter side, you have the chance to carefully look for a payday lender that is true to the Financial Conduct Authority’s (FCA) regulation.
- People With Bad Credit Are Welcome. Payday loans accept applications from potential borrowers who have bad credit. One of the reasons is probably because payday lenders are more concerned about whether the debtor can afford the loan in the here and now than their financial past.
- It Can Get Expensive. One of the significant downsides of payday loans is that they can get very costly. Depending on your state, the interest rates can be up to 398% to 400%.
- It Is an Unsecured Loan. Payday loans are unsecured loans, which means they don’t need your assets as security to borrow. So, you won’t have to worry about the lender seizing your assets if the worst thing happens.
Your payday loan application and experience will depend on your state of life and capability to pay. That’s why it may sound like a great deal for some but a nightmare for others. Before you head right in, you must carefully decide whether getting a payday loan would help you with your emergency. After all, it’s undeniably one of the quickest ways to get money to help you for such moments. You can use this article as a guide to help you determine if a payday loan is for you.