Payday loans are short-term, unsecured loans that you should repay in your next payday or within two weeks. Since these loans are usually the last resort for borrowers, especially those with poor credit, they have higher interest rates than banks or other traditional loans. Their ease of access and borrowing simplicity make them appealing to most consumers. Here are four things you should know about payday loans.
1. How payday loans function
You can access a payday loan through an online or in-person application process. Payday loan lenders rarely check your credit history. However, you should meet the minimum requirements to qualify for a payday loan, including being at least 18 years old, possessing an active account, and providing proof of identification and income. While some states don’t allow payday loans, others are regulated by state and federal governments. Some laws limit the interest rates or fees a lender can charge.
To repay the loan, you can give a post-dated check to your lender to deposit on your upcoming payday. You can also authorize them to take money once your employer pays you or get benefits like pension or social security income. If you cannot repay your loan within the agreed timelines, you can request a rollover. This lets you pay the borrowing fee while waiting for the next paycheck. You can apply for the ODSP payday loans or any other for instant cash in your account.
2. Payday loan risks
Payday loans can be alluring mainly if you have limited financial options or poor credit. However, you should consider their risks before applying for one. A payday loan should be repaid in full on the agreed date. This becomes difficult due to their high interest, resulting in rollover requests. The more you roll over, the more the fees accumulate, creating a debt cycle while sinking you deeper into debt.
Payday loans are high-risk, and if you don’t repay on time, you may receive repeated, threatening calls from debt collectors, threatening your peace of mind. Some lenders want access to your bank account, and if they make several withdrawal attempts when your account doesn’t have funds, you can incur overdraft charges. These loans are usually capped at around $500, meaning they aren’t a solution for significant financial issues.
3. Payday loans can destroy your credit
A payday lender might not care if you’re creditworthy, but this doesn’t mean that your credit can’t get affected. You may face immediate issues if you don’t repay your loan on time and fail to request a rollover. If all attempts from the lender to push you to pay fail, they might take you to court. Where the judge rules in their favor, you mind find yourself in the public records part of your credit report, damaging your credit rating.
4. Payday loan alternatives
While payday loan consumers might think they can’t borrow elsewhere, there are options to consider. You can borrow from a credit union, consider credit card advances, apply for a personal loan online, try pawn loans, turn to family and friends, request a salary advance, or find ways to generate cash quickly. This can save you from the hefty payday loan interest rates while avoiding the credit lifecycle.
Payday loans, especially internet loans, are ideal for emergencies and people with poor credit history. However, they’re high risk. Familiarize yourself with everything you need to know about them before applying for one.