4 Payday Loan Tips to Consider Before Applying

Payday Loans – 4 Reasons to Rethink

Payday loans are a type of short term loan that you can use to quickly get cash until your next paycheck. They are easy to get and generally online require proof of employment and a checking account. Basically you will write the company a postdated check that won’t be deposited until after you get paid again. This type of loan doesn’t even require a credit check.

Personal loans are convenient, but they aren’t the right solution for every problem. They are expensive and generally charge high fees and interest. These loans can have APRs as high as 500% if you aren’t careful. They are only a temporary solution and should be used with care and discretion. A payday loan may be right for your situation, but it might not be. Keep reading for five reasons why a payday loan might not be worth the risk.

Loans Are Expensive

One of the biggest risks associated with a payday loan is the expense. When you go in for a loan you will write a check that the company will cash at a later date. If you receive $100 you will generally have to write the check for at least $115 to cover the fees associated with the loan. Most lenders charge between $15 and $50 per $100 received depending on the length of the loan term.

Many people think that they will be able to repay the loan once they receive their next check, but this isn’t always possible. When the loan comes due if the money isn’t available the borrower will then have to take out another loan which will result in more fees. This can quickly become overwhelming and spiral out of control. Some lenders even offer roll over options which allow borrowers to have more time to repay and in turn result in more fees. As these loans roll over they get bigger and bigger and the company will simply withdrawal the renewal fee from the borrowers account each time the loan term comes up.

Some Lenders Try to Avoid Regulation

The federal government has rules regarding cash advance loans, but many lenders try to avoid these regulations by making the loan terms a little longer so they don’t have to comply. For example the government classifies payday loans as loans with less than 30 days until repayment, so lenders may offer loan terms the require repayment at 31 days so they don’t have to adhere to federal and state regulations.

Payday Loans Prey on Those with Low Income

Cash advance loans are commonly used by those with low income or low credit. This is largely due to the fact that they don’t require collateral or a credit check. Lenders realize that people with limited cash flow will have a harder time repaying the loans so they can earn more money from interest and fees, especially if the borrower lets the loan amount roll over.

Payday Loans Are For Emergency Use Only

There is a place for personal loans, but many people fail to understand that this type of loan is for emergency use only. People can quickly become trapped under a mountain of debt from these loans if they don’t use them intelligently. Borrowers run the risk of borrowing money when they don’t need it since payday loans are so easy to get.

$5,000 Personal Loans, Possible Despite Bad Credit History

Without doubt, the most common type of loan applications that lenders must consider are for personal loans. By design, these loans can be taken out for any particular purpose, suggestion any suspicion is likely to prevent the transaction from going through. But the process is much more reliable, and loans of as much as $5,000 can be quite easily secured.

Of course, having a poor credit score is something that lenders are not going to ignore. It is, after all, their job to assess the reliability of the borrower, and ascertain whether they can be trusted to make the required monthly repayments on time. In such instances, personal loans with bad credit are issued, which are different in that their interest rate is higher.

The fact is that loans for people with bad credit will never be available on terms as good as loans to applicants with good credit, though online lenders are beginning to challenge that idea.

Small Loans for Personal Use

There is a general belief that personal loans are never available in large sums. After all, if a loan of $50,000 is needed, the purpose for such a sum is surely the purchase of a car, or home improvements or even loan consolidation. These purposes are covered by specific loan deals. A personal loan with bad credit, however, hardly needs to be very high.

However, there are some advantages to seeking a smaller loan from lenders. A traditional lender, like a bank, will have questions about all loans, but online lenders offer a no questions asked policy on some loans up to $5,000, even loans for people with bad credit. So long as the applicant has a proven income, and a bank account, the lender does not care what the money is used for.

Types of Loan

There are two types of personal loan to choose from, with each having very real effects on the repayment sum and schedule. The first is a secured loan, where collateral is provided as security against the amount borrowed. When seeking a personal loan with bad credit, this option is generally the best since the security gives lenders a greater confidence.

Collateral also means that the interest rate is generally lower, which is good news for the applicants. However, the fact that loans for people with bad credit carry with them far greater risk makes the lender pleased since any default can result in them having seizing the collateral.

The second type are unsecured loans, which basically means that the loan is approved with no collateral as back up. With this kind of personal loan the risk is higher, even if the applicant has excellent credit history. An unforeseen loss of job can throw the repayment plan into jeopardy, so when it comes to personal loans with bad credit that are unsecured, the risk is considered very high.

Lenders typically react to this level of risk by charging higher than normal interest rates. This can mean a huge increase in interest paid over the life time of the loan compared to good credit loans. There are better options when it comes to loans for people with bad credit.

No Credit Checks

Arguably the best personal loans to get are those what require no credit checks at all. And this is why it is considered a good idea to seek personal loans with bad credit form online lenders.

With loans of as much as $5,000 available credit check free, there is no need for an applicant to fear the impression their credit rating will make. Of course, loans for people with bad credit will always have some conditions, like proof of income, they are much easier to get than many believe.