What Are Payday Loans and How To Qualify For One?
What Is A Payday Loan?
A payday loan, also known as a short term or cash advance loan is considered to be an unsecured personal loan that is supposed to be repaid from the borrower’s income and credit profile. The payday advance loans are depended upon the payroll and employment records with an organization of a consumer. The loan is often referred to as ‘cash advances’ or ‘payday advance’ where the cash is provided to the consumer through a prearranged line of credit which is like a credit card loan.
However, there are various kinds of rules and legislations regarding payday loans. These laws widely vary among several countries and federal systems of different provinces or states. Every origin has its own set of rules and policies for unsecured loans depending on the economy of the country.
In a payday loan, a consumer has to pay high-interest rates based on the credit received by the lender. These high-interest credit and fees have been applied by a number of laws over the years to regulate procedures. The general policy of a payday loan is to cover the costs with the portion of the borrower’s next salary or paycheck. However, the high-interest rates charged by these loans make it difficult for the consumer to return it according to the policies.
Furthermore, with high return fees and higher interest rates, these payday loans are considered to be predatory loans. The reason why payday loans are predatory as the lenders often target individuals of minorities because loans with higher interest rates are expected to be accepted under unfair terms and unethical means. Payday loans are typically predatory in nature, however, they are paid in a short-term period with small amounts just due to the next payday of the borrower.
How The Interest Rates and Financial Charges Of Payday Loans Are Calculated?
As mentioned above, the lenders of payday loans charge high levels of interest from the consumer that ranges up to 500 percent at an annual percentage rate (APR). Most of the states have certain laws regarding the limitations of interest charges which is often less than 35 percent. However, it is said that payday lenders fall under the category of exemption that allows them to charge high rates of interest
Consumers should be extra careful and beware while receiving loans from these lenders even though they qualify for state lending as per the laws. Every state declares its own individual laws where several states also outlaw payday loans of any kind. For example, in California, payday lenders charge the rate of annual percentage for up to 14 days which is calculated as 459% for a loan of 100 dollars.
Furthermore, the finance charges applied to these payday loans are insignificant and considering factors for consumers to pay attention to. It is because the fees and interest rate ranges from 18 dollars to 100 dollars approximately, according to the annual percentage rate. These charges are applied when a consumer is unable to repay the loan on time within the deadline. Oftentimes, the deadline for these loans is two weeks.
But other times, the short-term payday loans are generally for 30 days or less that helps the consumer to meet their short-term requirements and liabilities. Also, these short-term loans are usually of 100 to 1,500 dollars according to the income levels of the consumer. Other than that, many consumers end up becoming repetitive customers of lenders as these loans are rolled over for additional finance charges which makes the situation stressful for the consumer.
The loan is rolled on when the consumer does not repay on time. The ‘rolled over’ situation is stressful as the consumer is not only supposed to pay the original amount of the loan with interest but is also expected to pay an additional finance charge as the new total
For example, an average loan is supposed to be of 375 dollars with the minimum finance charges of 15 to 100 dollars approximately, the consumer will have to repay 431.25 dollars with 56.25 dollars of finance charges applied. But the ‘rolled over’ charges if the consumer is unable to pay till the deadline would become 495.95 dollars with additional finance charges of 64.65 dollars. This is a worrisome situation where a 375 dollar loan can become 500 in a month.
However, the federal Truth in Lending Act requires and insists on the lenders of payday loans to disclose their charges of finance. This is supposed to secure the money of consumers by giving them proper details and information. But even after that, oftentimes consumers overlook the costs and pays the additional price.
How To Obtain and Qualify For A Payday Loan?
The lenders of payday loans are often the merchants or holders of small dealing companies that have physical locations through which they allow onsite applications and approval of credit. However, some merchants also offer payday loan services through online portals and websites. In addition to that, the amount of loan depends upon the salary and income of the consumer and the payday lender.
The requirement of a payday loan application is completed when the consumer provides proper employer details that include the current levels of his income. The lenders often pay the loan based on the consumer’s predicted short-term income by calculating it in percentage. Many lenders also utilize the income wages of the consumer as collateral.
Moreover, other factors that influence the terms and conditions of a loan are the credit history and credit score of the consumer. These are obtained and required at the time of application through a hard credit pull which is also known as a hard inquiry. It is a type of credit information request and includes the full reports of consumer’s credit and score.
As mentioned above, the amount of the payday loan lent by small merchants is completely dependent on the income of the borrower. However, the loan requirements are not the only facts for consideration as the amounts can also vary in higher exceeded rates. It is common for these amounts to vary from 50 dollars to 500 and 100 dollars with expensive alternatives to be taken care of which includes the additional finance charges.
Moreover, If you have any questions or concerns about applying for payday loans online, then check out applications for the best payday loans online with Personal Money Network.