Tag Archives: payday loan

How do Payday Loans Work?

payday loans

Payday loans are basically short term loans which can be very useful during a financial emergency. The term was coined because the loan is tied up with the borrower’s source of income. This type of loan may appear to be very convenient for some people who are strapped for cash but acquiring this kind of loan can sometimes be tricky and stressful. Therefore, it is important for borrowers to do their research first so they will not end up in a lot of debt.

Payday loans are called short term loans since the borrower has to pay the loan amount within 2 weeks or so. The loan amount is usually modest since lenders do not typically release large sums of money for this kind of loan. The borrower must first issue a check for the loan amount plus fees. If the borrower is not able to pay the loan amount on the agreed schedule, then they can ask the lender for a roll over so that the loan will be extended. This is probably one of the worst things that can happen to a borrower because the fees will keep on building up. Fortunately, some states have already limited or regulated the number of roll overs for the borrowers.

 

Are payday loans worth the risks?

Payday loans may save your life especially during desperate times; but in reality, this type of loan can be ridiculously expensive. Borrowers must pay an APR or annual percentage rate that could be a lot bigger considering that the loan period usually lasts for 2 weeks or so. Another major pitfall of a payday loan is the cost that it entails. The fees on top of the loan amount are usually high plus interest rates.

However, payday loans can still work for anyone as a short time solution. As a borrower, you just have to always keep in mind the due date of the loan and it will also help if you deal only with legitimate and trusted lenders.

Payday loans are mostly offered by private lenders but because of its popularity; banks are now offering this kind of loan provided that the borrower will be able to comply with the requirements. Loaning from a bank is a better alternative from traditional bank loans. However, the process and pitfalls of a payday loan from a bank is basically the same as from a private lender or financial institution.

Now despite issues, if you still think that getting a payday loan will solve your problems, then here are a few things that you need to carefully consider:

  1. Do your own research online or by asking referrals from your friends or colleagues. Ensure that you take the time to read about lenders and what they have to offer.
  2. Always read the fine print. Better yet, look for a lender that offers deducted fees or even minimal interest rates.
  3. Be mindful of your due date. Make sure that there is enough money on your checking account so that the payment will be processed.
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Mistakes You Should Avoid When Taking Out a Payday Loan

Nothing can stop borrowers from taking a payday loan, not even the idea that it is expensive and one of the ways to sink deeper into debt traps.  However, this doesn’t mean that one should ignore their predicament and do not offer solutions to avoid being too dependent with payday loans or any type of instant loans.  One such solution is to inform these borrowers of the costly mistakes that they should avoid in order for this kind of loan to work for their advantage.

Here are the mistakes that borrowers should avoid:

  1. The first mistake borrowers commit when it comes to payday loans is rushing to apply for one. They did not think it over many times to analyze if they really need it, if they have ways or means to repay it, or find more convincing reasons to actually need it other than superficial reasons.
  2. The second mistake borrowers commonly make is that they do not investigate well and just accept the fact that it offers quick and easy loans. Borrowers do not find time to see if they are borrowing from a legitimate loan company; one that will not dupe borrowers with their money.  Borrowers do not find time to roam around the website of these companies and find more important details like if the company offers reasonable interest rates or if the loan application form details are complete.
  3. The third mistake borrowers often do is that they do not know their financial limits.  Because payday loans have easy approval mechanism and are not rigid, borrowers go for the kill and borrow more than what they can afford to pay. As a result, they end up paying more interests and surcharges and eventually ruining their credit history further.
  4. The fourth mistake is quite a surprise to many because most borrowers will treat this as just being forgetful.  This mistake is all about lack of information on hand when needed. It is important that you have all relevant details beside you when filling up loan application forms. Yes, it takes hours or even minutes to have payday loans approved but when you do not have your ID numbers or employer information at your fingertips, your loan approval will surely be delayed.
  5. The fifth mistake borrowers are guilty of is due to their excitement to receive loan proceeds, they forgot to double check important loan application data.  For example, some of them did not realize that the interest rates stated in the form are different from what is advertised in the website or that the terms and conditions reflected in form is totally different from what you agreed with.

You might think that some of these mistakes are trivial like failing to provide relevant information or by failing to double check payday loan application entries but it can still affect your payday loan application and these mistakes can be costly; you will end up paying something which you did not expected like higher interest rates or conditions not mentioned early on.

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4 Failure Free Tips on a Payday Loan

Even if it is popular and easy and quick to acquire, a payday loan can also lead to failure.  Yes, there are some not so successful stories with regards to this type of loan.  There are many causes of failures; some were just due to overlooking important details while others causes were due to borrower’s own volition and carelessness.  Regardless of whose fault failures are, borrowers should take note of these.

Meeting the minimum requirements

Some borrowers were not able to have their loans approved even though they are at least 18 years old and have a regular job with steady monthly income.  The reason is that they do not own bank accounts.  Many borrowers for some reasons known only to them, do not find owning at least a savings account beneficial. For them, maintaining bank accounts is another extra activity for them and another expense.  In many cases, most banks require accounts to maintain specific balance to avoid penalties.

Not knowing which type of loan to avail

Payday loan companies can only offer a small amount of money as loan to borrowers. The amount ranges from several hundreds to a little over a thousand.  That is not enough to pay invasive medical procedures but is rather used to help borrowers pay inevitable and immediate expenses because payroll is just few days ahead.  Naturally, if you borrow the same amount of money banks can give, then, payday loans is not for you and your application will definitely be rejected unless of course you want to scale down your financial requirements.

Ending up paying more than what is normal

Payday loans per se are already exorbitant and there are loan companies who charge borrowers even more especially if they fail to pay and make arrangements for rescheduling of repayment.  The failure either unwittingly happens since borrowers are in too much haste to solve emergency financial worries just to apply for a loan on the first convenient and available loan company.  He or she did not exert extra effort to find the best loan companies that can give the best terms and conditions which at the end of the day; borrowers will not end up paying more than what is the standard practice in the industry.

Paying additional interest and surcharges

It is a failure on the borrower’s part since it is their obligation to see to it that they will repay the money that they borrow.  In some instances, borrowers do not take payday loans very seriously as they are convinced that they can access loan facility from this type of loan as payday loans companies will accept borrowers with negative credit score.  So, they are confident that if they happen to become like one, they can still solve their temporary financial setback.

Payday loan setbacks or failures in many cases can be blamed to borrowers.  It cannot be directed to loan companies as their obligation extends only in approving the loan. It is the responsibility of borrowers to repay the loan and see to it that they are dealing with reputable loan companies.

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