Why do people apply for payday loans?
What is a payday loan?
A payday loans where a lender extends high-interest credit is available. This is based on your income. It typically uses a portion or your next paycheck as its principal. Payday Loans charge high interest rates for immediate credit. These loans can also be referred to as check advance loans and cash advance loan.
Understanding Payday Lenders
Payday loans don't require collateral or charge high interest rates. These loans can be categorized as predatory lending. Because they don't consider a borrower’s ability to pay back and have hidden clauses that charge additional fees, payday loans can become a debt trap. Payday loans are not recommended. You should look into personal loans.
Is a payday lender secured or unsecured
The majority of payday loans you can get are unsecured. This means that you don't have any collateral to the lender or to borrow against a valued item, like in a loan shop.
Instead, the lender will typically ask you permission to electronically withdraw money directly from your bank, credit card or credit union accounts. A lender may ask for a check covering the repayment amount. If approved, the lender will cash the check when it is due. Under federal law, payday lenders are not allowed to condition a loan on the consumer signing authorizations for "preauthorized (recurring)" electronic fund transfers.
How long are payday loans allowed to remain in the system
Credit bureaus--the companies who calculate credit scores - may keep records about traditional loans for six to 10 year. This could affect your ability later on to borrow money. Payday lenders usually do not report to credit reporting agencies, even if there are overdue repayments. After the lender sells the debt, the payday lender can file for a loan.
Your credit score is not likely to be affected if the payday loan is repaid on time. You will notice a decrease in your credit score if you default or have your debt placed with a collection agency.
The Bottom Line
Payday Loans are designed to cover short term expenses. You don't need collateral, a bank account or collateral. These loans are subject to high interest and fees.
These loans should be avoided. These loans may be considered predatory lending. They have high interest, don’t take into account the ability of borrowers to repay and have hidden provisions that can charge additional fees. This can make it easy for consumers to fall into debt. It is a good idea to look into safer personal loans alternatives before taking out a payday loan.