Learn how payday loans work, how to weigh your options between different lenders, and how to get the financial option that will work best for you.
When you have unexpected expenses and need cash now, there are many financial options available to help you. Payday loans could be a great solution to turn to when you need money from your next paycheck now instead of later for sudden expenses.
Before deciding on the best course of action in a financial emergency, it’s important to understand how these options work. Let’s go over how payday loans work, what they are, how to get one, and other alternative options that might work better for you.
What are Payday Loans?
They are a type of short-term loan that helps borrowers get money from their next paycheck now instead of later. This can help borrowers get the money they need when sudden expenses arise and they can’t wait for payday to make important transactions.
How Do Payday Loans Work?
A big part of understanding payday loans is understanding how payday loans work. They’re a very simple loan that gives the borrower the money they need, and then the borrower pays this small dollar loan back in one payment on their next payday.
Step 1: Fill out an application
The very first step is for a prospective borrower to fill out an application. This application might require information like your contact information and income information. This application information then helps lenders determine whether you can get approved or not.
Step 2: If approved, get money
The lender reviews your application and then decides whether you’re approved for a loan or not. If your application is approved, then you’ll receive a loan agreement to sign and you’ll be given the funds you need. You might be able to receive cash or get your money deposited into your bank account.
Step 3: Repay on your next pay date
Unlike an installment or personal loan, payday loans are repaid in one lump sum on your next pay date, not in multiple payments. Exceptions may arise, but usually this small dollar loan is an amount from your next paycheck and repaid when your next paycheck arrives.
It’s also important to know that payday loans are not secured loans because they don’t have any collateral that goes with the loan like a title loan or mortgage. They are also usually paid back in one lump sum rather than installments and they are not a rollover or revolving loan.
But, what happens if you can't repay the loan? If you can’t make your loan payment then contact your lender as soon as possible to work out a solution. Some lenders may be able to work out a new repayment plan that better suits your situation.
How to Get a Payday Loan
To get a payday loan you need to first pick a reputable lender by comparing lenders in your area. You want to pick a reputable lender that you know you can trust.
Check their reviews to see what other customers are saying about their experience with them. You can also check to see if they are a licensed, direct lender or not to see if they operate under state lending laws to keep borrowers safe.
The next thing you can do is read disclosures and agreements carefully. Before you sign any financial agreement you should always take the time to read the agreement and make sure you understand the terms you are signing up for.
Another thing you can do to help get a payday loan is make sure you can repay the loan. Make sure you understand how your repayment plan will work, how much you’ll pay, and when you’ll make that payment. When signing up for any loan, you always want to do your own due diligence by budgeting for the loan payment as well.
Once you have a reputable lender in mind and have included the loan in this month’s budget, you’ll just need to provide the right documents to apply. For example, you might need to have documents ready like your basic contact information, government ID, social security number, check or bank statement, and proof of income.
How Much Can I Borrow?
How much you can borrow from a loan depends on many factors, like the lender and your income. Keep in mind that these are small dollar loans, so the amount you can borrow is usually on the smaller side, like a few hundred dollars rather than a few thousand.
For an estimate of how much you’ll be able to borrow, speak with a loan representative at your lender.
What are the Costs?
All loans come with costs like interest rates, annual percentage rates (APR), origination fees, prepayment penalties, and more. What fees a loan has depends on the type of loan and the specific lender.
Payday loan costs include a borrowing fee and can sometimes include additional costs or fees. Read your loan agreement carefully to review any costs associated with your loan.
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