What Is a Payday Loan and How Does It Work?
A payday check is a short term loan that you get when you need to sort your urgent cash need. The loan is refundable in two weeks or a date close to your payday. It charges triple-digit annual percentage rates.
When taking these loans you need to be careful as it can be challenging when it comes to paying. When you are applying, it is better if you know what you will be getting and what is expected of you in two weeks.
How Do Payday Loans Work?
Payday loans work differently compared to other consumer loans out there. You can get your loan depending on where you live. You can get the loan online or through a physical branch that is handled by a payday lender. Different countries around the world have put in place laws that show how much you can borrow and the amount payday loans companies can offer to their clients. There is also a law that regulates the amount of interest these loan companies can get from a single loan. This is because these companies tend to exploit their customers. While other states allow payday loans to operate, others don’t allow them at all.
Once you apply and you are approved, money is sent to your mobile money wallet, bank account, and in some cases, you are issued with a check. Once you receive the money, you will be issued with the date on which you are to pay back the loan in full together with interest gained.
According to The Economist, roughly 2.5 million people living in the US take payday loans to sustain their lively hood before the next payday.
Here’s a great video from Khan Academy that goes a bit more into detail:
Reasons Why People Take Payday Loans
There are so many reasons why people in the US prefer to take payday loans. Here are just a few of them:
- No other financial option someone is unemployed and gets an emergency, the first thought that comes to mind is payday loans. This is because they have a bad credit score and no source of income.
- Fear of alternative
People fear to ask for help from family members and friends as they are afraid of being embarrassed and talked about so they turn to payday loans without proper knowledge of their interest rates.
- Easy access
So many people result in payday loans because these lenders are everywhere and they easily give loans compared to banks and other money lending organizations.
- Few requirements
When applying for payday loans either online or in their shops, you only need your national for documentation. This makes people sort these services as nothing much is required when comparing with other money lending facilities like a bank. Banks offer long paper works and the loan you requested takes long before it is approved and the rate of being denied loans is high.
The amount you can borrow depends on the state you live in and your credit score.