There are many situations in life where payday loans could actually be very helpful. Before you consider applying for a payday loan, it is important that you understand how it works. Of course, there are various costs and risks associated with this type of loan, and that’s why you are advised to do your own research before applying.
How Payday Loans Work
First, it is important to understand what exactly a payday loan is. Payday loans are short-term loans that you can apply for when you are having an emergency and you are out of cash. Usually, the lender requires borrowers to pay back the loan within a period of two weeks or 30 days depending on the amount borrowed. To access this loan, borrowers are required to write a check for the amount that you would like to borrow plus the fee charged. The next step is to submit the check and cash it once you are ready to repay the loan.
If your loan is due and you are not able to repay it, you can ask your lender to roll it over to the next repayment period. The only problem is that the fees charged will be accumulated. Sometimes, the number of times that you can roll over your loan is limited depending on your lender.
Payday loans are sometimes referred to as no credit loans. What this means is that you don’t
need to have a good credit rating to access payday loans. In fact, credit history is not one of the requirements for applying for a payday loan. When compared to the traditional loans, payday loans are easy to apply and get approved. This is why it is the most preferred option among people faced with financial difficulties and small emergencies.
The Costs Involved When Applying For Payday Loan
Payday loans are somewhat costly compared to the traditional loans. The APR (annual percentage rate) charged is very high. For example, a loan of £100 may require you to pay an APR of up to £20 for a period of two weeks. It is evident that the interests charged on these loans are high, but they are easy to be approved. Another reason for the high APR rate is that they are unsecured; no collateral is required during the application.
What Are The Requirements For Payday Loan?
In order to be eligible for a payday loan, you must fulfil the following requirements:
· Have a bank account with relatively good standing
· Regular source of income
· Be at least 18 years old and above
· Working at least 16 hours per week
As mentioned earlier, payday lenders are interested in your credit history. In fact, they will not interview you to try to find out if you are capable of repaying the loan. The loans are not given out based on the borrower’s ability to repay; they are based on the ability of the lender to collect. It is known that borrowers have other obligations and responsibilities to take care of, and that is why lenders are advised to loan you the amount that they are able to collect. This is typically how payday loans work.