A payday loan is a short-term loan that can help you meet your immediate cash needs until you receive your next paycheck. These small, high-cost loans typically charge triple-digit annual percentage rates (APR), and payments are usually due within two weeks or close to your next payday. Payday loans are usually fast cash for small amounts that need to be repaid in a single payment. If they are not fully refunded by the due date, additional fees are usually charged and the due date is extended.
This can lead to a vicious cycle of reactivation over and over again, incurring more and more commissions. Usually, personal loans are paid online monthly by direct deposit from a bank account. With a payday loan, if your check bounces or you can't pay the full balance on the required payday, you may have to transfer the loan to the next payday, accruing more fees in the process. In states that allow payday loans, you can find licensing information through your state's banking regulator or the state attorney general.
To repay a loan, borrowers can redeem the check by paying the loan in cash, allow the check to be deposited in the bank, or simply pay the finance charge to extend the loan for another repayment period. All a consumer needs to get a payday loan is a bank account opened in relatively good conditions, a constant source of income and identification. The payday lender may report the default to the credit bureaus or sell the debt to a collection agency that does so, which will hurt your score. In fact, the CFPB found that 20% of payday borrowers defaulted on their loans, and more than 80% of payday loans contracted by borrowers were extended or re-borrowed within 30 days.
Because payday lenders often don't perform a credit check, applying for a payday loan doesn't affect your credit score or show up on your credit report. If the loan is due soon, the lender allows the previous loan balance to be converted into a new loan or will renew the existing loan again. Interest rates could be close to 35% than the 6% rate received by those with good credit, but 35% is still much better than 39.1% for a payday lender. If you have a strong financial history but only need a little extra money to cover an expense, a payday loan could be a great option.
Avant requires a minimum credit score of 580 FICO with an estimated APR ranging from 9.95 percent to 35.99 percent significantly lower than the estimated 400 percent you would face with a payday loan. The CFPB estimates that 80% of payday loans are refinanced and 20% end up in default, which is included in your credit report for seven years and almost eliminates you from borrowing in the near future. For the 32 states that do allow payday loans, the cost of the loan, fees and maximum loan amount are limited. If you can't pay the payment when your next payday arrives, that's when a lender offers you a “reinvestment”.
But a pawn loan is an expensive way to borrow money, as some loans charge APR above 200 percent, and the term of many pawn loans is only 30 days. A payday lender will confirm your income and checking account information and give you cash right there in a store or, if the transaction is done online, as soon as the same day. You can start by calling your creditors or the loan servicer to see if you can get an extension on your bills. .
