Thinking about applying for a payday loan? Before you run to the nearest payday lending company, there are a few things you should know about these convenient little loans. Cash advances or payday loans aren’t a new concept. In fact, they’ve helped many cash-strapped individuals for decades. But as these loans have increased in popularity in recent years, they’ve become a last resort solution for emergency cash.
Of course, to get the most out of a payday loan, you need to understand how these loans work.
This is a type of subprime lending.
A payday loan isn’t your ordinary type of loan. People in need of a loan often think of banks and credit unions. Although these financial institutions are a common place to seek financing, they are not the only options available. As a whole, these institutions cater to people who have excellent credit scores. If your score is below their minimum, you may not get approved. Payday loan lenders work differently. Because payday loans are a type of subprime lending, you can get approved with no credit history or a bad credit history. This type of loan works best for people with low credit scores who can’t qualify for traditional financing.
You must be employed.
Because payday loans have easy loan requirements, many people assume that anyone can qualify for a loan. This isn’t exactly true, and if you want to get a payday loan, you must be employed and earn a certain minimum (usually $1,000 a month). The minimum length of employment is between three and six months, depending on the lender.
You need an active bank account – at least three months old.
If you don’t have a bank account or have a newly opened bank account, the odds aren’t in your favor. Payday lending is an electronic process. Once you’re approved for a specific amount of money, the payday lender deposits this money directly into your bank account. There are no printed checks to pick up and deposit. And on your due date, the lender automatically deducts the loan balance plus fees from your bank account.
These are short-term loans.
Applying for a loan with a bank or credit union gives you the flexibility to pay back the funds over several months or several years. You don’t have this luxury with a payday loan. These loans provide emergency money, but the terms aren’t exactly long. The average payday lender has a two-week term, in which loans are due in full within 14 days.
You can request an extension.
The worst thing you can do is hide from a payday lender if you can’t repay your loan by the due date. Payday loan companies are subprime lenders, however, they are reasonable and willing to work with borrowers. Notify a lender of your financial situation, and many will gladly extend your loan term for another two weeks. You will pay extra interest, but avoid a late fee and collections.
