A payday loan is taken for a short-term loan that assists you to fulfill immediate cash requirements. It is expected that you pay back the loan only within a few weeks of borrowing. Payday loans for businesses appear attractive as they provide funding the same day requested by you.
They do not consider your credit score as well. If you can meet some minimum requirements like income proof and an active bank account, you will get a payday loan.
The amount that is allowed to borrow is limited by state law to $500 or less. Payday loan for business has certain merits and demerits. However, you should have complete information about the payday loan before taking it. Here are 4 things to know about payday loans.
1. How does a payday loan work?
Let me tell you; payday loans work by different names like deferred deposit, cash advance, and online payday loans. However, all these work in a similar manner. For taking a payday loan, you need to write a cheque that is postdated. It is to be made to the lender and the additional fees. You can also authorize the lender to debit the amount from your account electronically. As a result, the lender will be giving you cash. The loan is due by your next payday. The period lies between two to four weeks.
In case you cannot repay the loan and finance charges by the due date, the lender has the power to debit your bank account electronically. Many states that allow payday loans have set a cap on the loan amount and accompanying fees. Companies are allowed to charge from $10-$30 for every $100 borrowed based on the state.
2. Why is a payday loan popular?
Payday loan has gained a reputation as a short-term or immediate solution for unexpected expenses. Many lenders of the loan advertise payday as ‘easy money’ or ‘fast cash’ and other striking slogans to attract borrowers. The majority of people use payday loans for expenses like paying the mortgage, food, and utilities. Payday loan users mostly lack a college degree, renters, not homeowners, their income is less than $40,000 per year, or they are divorced or separated. They also take a loan for unpredicted costs like car and home repairs and medical care.
However, laws are different from state to state that impose restrictions and rate caps on the number of loans one can take. Several states have also deleted payday loans because of specific reasons. They are either not permitted by the laws or because payday lenders have decided not to conduct business at the fees allowed.
3. Why may you need a payday loan?
There might come situations where a payday loan proves useful to you. If you need immediate cash for the short term and are confident to pay the loan within a limited time, you can consider the option. Practically, a payday loan is useful to cover a bill for you. The loan is helpful when you need to pay rent or bills at the end of the month.
In the middle of the month, borrowers with insufficient funds can borrow the loan and repay the amount within the allotted period. You can fulfill a simple cash shortfall by taking a payday loan. It might help you to keep your phone and light services activated.
4. What are the risks associated with a payday loan?
Payday loans have high fees with short repayment times. It makes it difficult for the borrowers to repay the loan within a short time. It makes them take a second loan that incurs additional fees. Failure of borrowers to repay payday loans harms the banking relationships. It is because lenders withdraw funds from bank accounts that have insufficient funds. Most payday loan borrowers end up owing bank fees for returned checks or overdrafts within 18 months, increasing costs.
The regulations that aim to prevent re-borrowing are being rolled back. Many of the borrowers who take a payday loan are forced to close their bank accounts to your shock. It makes future financial transactions like cashing a paycheck, paying bills expensive and difficult for the borrowers.
Though a payday loan is useful in some emergencies, the loan’s high interest and additional fees make it difficult for the borrowers to repay the loan. You need to assess your financial condition and ability to repay it before taking the loan.