Have you ever been in a cash-stricken situation? If you’ve ever been in such a situation you may be familiar with the term “instant payday loans”. According to the Consumer Financial Protection Bureau (CFPB), a payday loan is a “short-term loan generally for $500 or less that is typically due on your next payday.”* One of the problems that arise for those who take these loans relates to debt. Since the financial charge or cost of the loan is usually exorbitant, borrowers could end up owing a substantial fee, especially if the charge rolls over due to inconsistent payment. This reality is evident based on the fact that these loans usually have a high default rate.
instant payday loans
Qualification for Instant Payday Loans
Deferred deposit loan, advance check, cash advance and past-dated check loans are terms which relate to the same thing, i.e. payday loans. These loans are typically easier to attain than other forms of credit. Though the requirements may vary from one state to the next, a few qualifications are usually similar across the board. For instance, many payday lending stores require the following:
Proof of identity via ID
Proof of income e.g. pay slip
How a Payday Loan Works?
Borrowers can access a instant payday loan from financial companies and check cashers. The loan usually process usually entails two (2) main aspects:
1. Getting the loan
Before a loan is provided, the borrow will need to give the lender a postdated check in the amount which is requested as well as the additional fees related to the cost of gaining the loan. The lender in turn gives a check, instant cash or a money order based on the amount requested and the needs of the borrower. The lender may also deposit money in the checking account of the borrower.
2. Making payments for the loan
Since it is a payday check, the customer will be required to pay back the loan on the next payday. The loan arrangement typically stipulates the appropriate payment process, whether it is paid in a lump sum or in increments. A loan of $300 could be repaid in full or with $100 payments for a short-term period. In addition, a lender may request a service charge, for instance $15, for every $100 payment on the loan. Note that if you default on your payment, additional fees may apply.
How to Calculate the Risk?
One of the biggest mistakes any customers can make is to take a loan without understanding the terms of the agreement. Since loan agreements usually include financial terms which you may not be familiar with, a careful perusal of the terms is vital before you sign an agreement. One of the main terms which are often used within the payday loan industry is annual percentage rate (APR). An understanding of APR will help you determine the level of risk associated with a loan. It will also help you to compare loans and services from different lenders.
A check advance loan usually had a very high annual percentage rate (APR) and thus can place borrowers in a perpetual debt trap. Since the APR is based on several factors including the service fee, the amount you borrow and the length of the loan, calculate these factors before you sign any loan agreement. Also ensure that the agreement outlines the payment process as well as the process whereby you can file a complaint if problems arise with the lender.
Alternatives to Payday Loans
Though cash advance loans often seem like the only solution for borrowers, this may not be the only option available. Ensure that you consider the following alternatives before you get a instant payday loan.
Learn how to make a realistic budget: According to the Federal Trade Commission, learning how to make realistic budgets is one of the best alternatives to a cash advance loan. As you create a budget, include your monthly expenditure and avoid unnecessary spending.
Small loan from friends or family: In many cases, family and friends are willing to help. And best of all, you won’t have to worry about exorbitant interest rates.
Loan from a credit union or small financial business: These institutions sometimes provide better rates than payday loans. For this reason, do not limit yourself to one credit option. Compare rates and choose the most cost-effective option.
Payday loans are a quick solution but often result in debt. In cases where such a loan is unavoidable, ensure that you understand the terms, calculate the risks and choose the most cost-effective solution