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. A payday loan is a type of short-term loan in which a lender will provide high-interest credit based on your income. Usually, your equity is a part of your next paycheck. Payday loans charge high interest rates for immediate short credit.
They are also called cash advance loans or check advance loans. Payday loans are short-term cash loans with high interest rates. To get one, the borrower issues a personal check to a loan company for the amount of principal plus fees and takes home cash for the amount of principal. Usually, the repayment is due two weeks after the loan is granted or the customer's next payday.
Default also opens you up to harassment from debt collection agencies, which buy the loan from the payday lender or are hired to collect it. Payday lenders often base the principal of their loan on a percentage of the borrower's expected short-term income. Check NerdWallet's database of local alternatives to payday loans to see what's available in your state. Another penalty that consumers often incur for payday loans is insufficient funds charges (returned check) from their bank.
Lenders hold checks until the borrower's next payday, when loans and finance charge must be paid in a single lump sum. If you are considering a payday loan, you may first want to take a look at safer personal loan alternatives. Payday loans only require proof of identification, income, and a bank account and are often given to people who have bad or non-existent credit. This is because payday lenders earn significant sums from the interest they charge on these loans.
In the long term, you can also work to fix the underlying financial issues that lead you to a payday loan counter. Surveys suggest 12 million US consumers get payday loans each year, despite ample evidence that they make most borrowers go into more debt. If you are considering applying for a payday loan, a personal loan calculator can be a vital tool in determining what type of interest rate you can afford. But while payday loans can provide much-needed emergency cash, there are dangers you need to be aware of.
Payday loans are a quick fix for consumers in a financial crisis, but they are also budget-breaking expenses for families and individuals. And since there is no set definition of what constitutes a payday loan, your state may allow other types of short-term personal loans. Because of the high interest rate, many people end up owing more than they originally borrowed and don't pay the payday loan. While a payday loan may seem like a quick fix, there are other options that can help you stay out of a debt cycle.