Short-Term/ Payday Loans
Short-term loans are very attractive because of their ready availability and the relief they offer on those rough days before payday. However, it’s important that you understand how short-term loan payments work, and the risks involved before applying for them.
What Are Short-Term Loans?
The fact that a majority of Americans find it difficult to make “ends meet” before their next payday is no secret. Seeing as this is the case, loan creditors understood that there is market for supplying the general public with short-term loans (also called payday loans) regardless of credit score.
Short-term loans, cash advance or payday loans are all names given to the type of loan available for anyone employed in U.S, but whose credit rating does not meet eligibility for borrowing from a bank. You’ve probably seen advertisements for these type of loans on internet ads, T.Vs in store fronts and even on billboards. If you’re wondering if this loan option is best suited for your situation, below are some tips to help your decision.
Advantages of Payday Loans
- Processing is quick – Given the required bank account information short-term loans can be processed as quick as 2 – 3 minutes online with deposits as soon as 12 – 24 hours. For a storefront, this time can fluctuate.
- Qualifications are flexible – Payday loans have more relaxed qualifications in comparison to other loan types because the duration of credit and the amount credited are lower. There are high-risk borrowers however, who will qualify for borrowing large amounts that they would have never qualified for in a bank, and there are also borrowers who don’t qualify for any amount at all.
- Application process is super easy – Applying for a payday loan can be easily done from the convenience of your phone or from a storefront. The application only requires that you give the lender personal information such as social security number, full name, birth information and bank account information for the deposit of your funds.
Risks of Payday Loans
It’s easy to get addicted to payday loans because they are easy to get and can rapidly help you build great credit. That being said, short-term loans are not a solution to long-term financial problems. Taking out short-term loans to fix your long-term financial problems will plunge you into deeper debt and cause you to pay huge sums at higher interest rates.
There’s usually a warning given by short-term loan providers that typically states that short-term loans are only meant for financial assistance for a couple of days or weeks before your payday and you are therefore advised to seek financial credit counseling to know the risks associated with taking out a cash advance. You should also review your local laws before opting for payday borrowing.
Choosing the Right Lender
- Location – An online lender is more ideal considering when borrowing from a local storefront lender, you may bump into a representative while running your daily errands and this may cause you will feel more pressure. Online lending provides complete anonymity whereas a storefront leaves one exposed and open to public feelings of insecurity and shame.
- State Regulations – There are only 36 states where short-term borrowing has been legalized. If you are in one of the 14 states where the practice is illegal, it’s not wise to juggle your luck.
- Credit Counseling – It’s important that you consider borrowing from a company that promotes credit counseling and offers free services on the same. Credit counseling implies that a company is interested in your financial stability in the long-term.
- Interest Rates – Short-term lending agencies are required by law to publicly declare their interest rates. This may be in the form of a percentage or a flat quantity/fee, for example $15 for every $100.
- Payment Flexibility – Inquire to your lender about repayment methods and frequency of said repayment. Will the agency allow you to change your repayment schedule if need be? Do they want you to pay back in lump sum or do they accept installments?
- No risk guarantee – This is where the lender offers to charge you no interest if you’re able to pay back in three to five days.
You should be up-to-date with federal and state regulations that continue to change by making frequent visits to the Federal Deposit Insurance Corporation site or the Consumer Financial Protection Bureau.