Approximately 12 million Americans apply for small payday loans annually. One of the reasons they apply for the loans is delayed salary payment. Most of the loans are for covering recurring expenses like food, rent and credit card bills.
Before you apply for small payday loans, be sure that you need one. You also must be in a position to repay it on time. Being late on repayments can make the costs spiral out of control.
Once you decide you need to get one, here’s what you need to know.
What’s a Payday Loan?
Small payday loans are a form of credit that you can access quickly when in urgent need of cash. They’re available to salaried people with bad credit or low incomes. They mostly target people ineligible for traditional loan types.
For this reason, small payday loans attract a higher annual percentage rate than other types of personal loans.
Since they’re a form of short-term lending, the loans range from $50 to $1,000. With the high number of people seeking these loans, the amounts can add up to a lot of money. This is an indication that people have an ongoing shortage of cash and a need for more income.
How do Payday Loans Work?
Payday loans are available in 37 states, according to the National Conference of State Legislatures. The amount you borrow depends on the where you live. The lender will require you to provide valid identification, proof of income, a checking account, and a valid phone number.
You’ll apply for the loan by writing a check to the lender for the amount you’re borrowing. If you apply online, you’ll give authorization to the lender to debit funds from your account once available.
Once the payday loan is approved, it’ll be paid directly to your account. Your lender expects you to repay the full amount plus all accrued interest at the end of the month. With some other lenders, you can repay in installments over a more extended period.
The primary thing in common with all these loans is their high cost and short terms. In most cases, you have up payday to repay them.
Being unable to pay by the deadline will attract more charges. This can plunge you into a never-ending cycle of borrowing. As such, only ensure that you’re borrowing what you can afford to repay.
What Will Payday Loans Cost You?
As mentioned, payday loans come at a cost. In most cases, the price is usually higher than that of other types of loans. Fortunately, the law puts a limit on the amount of interest that lenders can charge. The amount is limited to $15 to $30 for every $100 borrowed.
Your inability to repay the loan within the stipulated time, will attract an additional fee. For example, if the fee for your loan is $60, it’ll attract an additional $60 to roll it over. By the time you repay the loan, you’ll have topped up your credit with $120.
Where Can You Get Small Payday Loans?
Payday loans are offered by storefronts that specialize in this type of loans. With the storefronts, you have to make a physical visit to meet the lender. People living within the urban centers are more likely to qualify for small payday loans than those in rural areas.
Another alternative is to apply for loans online through lenders like Bonsai Finance. Many online lenders require you to provide your bank details. This way, they can automatically deduct the amount when due. It’s also wise that you do some background checks before engaging with online lenders.
Should You Get a Payday Loan?
Payday loans can come in handy when bills are high, and funds are low. If you need cash urgently and know that you can repay it in good time, a payday loan can help. It’ll help make ends meet without breaking the bank.
In most cases, when you borrow your first payday loan, the habit becomes recurrent. This is because your salary goes into meeting the loan repayment. You’re then left without enough money to cover your expenses.
The cycle continues because you have to go back to borrowing. When you think of borrowing a payday loan, be very sure that you won’t get entrapped in a never-ending cycle of debt. Have a plan beforehand how you’ll survive with what remains after repaying the loan.
Payday Loan Alternatives
When you’re in financial difficulty, it’s hard to see any other alternative. However, the truth is that there are other options you can consider before you take up a payday loan. Always let a payday loan to be the last resort after you’ve tried other options.
If you’re looking for a small amount of money to pay bills, for example, here’s what you can do.
- If you’re late on paying a utility bill, talk to the utility company and find out about its hardship plan. You may qualify for a stretch out of the payment or have your payment partially covered.
- In case you’re running late on paying rent, ask for an extension from your landlord. You can agree on a flexible repayment schedule where you pay in bits till the rent is covered.
- Use a credit card to pay for bills. The cost could be high, but less than the cost of a payday loan.
- Borrow from friends and relatives. Draw up an agreement plan and stick to it.
- Look for alternative sources of income.
- Get an advance payment from your employer. It’s a flexible fee-free option of getting money.
- Borrow from a federal credit union instead. Most of them charge no more than 28% interest on loans.
One of these options should yield results before you consider turning to a payday loan.
Final Thoughts
Most Americans will seek small payday loans to sort out emergencies and recurrent bills. Unfortunately, the loans attract high interest, are short term, and only avail up to a certain amount. Lenders fall into online and in-store businesses.
Before they can extend their loan facilities to you, they’ll want you to present them with several documents. Proof of income, valid identification, and your account details are some of the requirements.
Most payday loans should be repaid within two to four weeks. Remember that the lender wants the principal amount and interest. Before you get a payday loan, check that you can repay in good time.
Better still, look for other alternatives before you sign up for the expensive payday loan option.
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