If life takes a turn for the worst, you may find yourself in hot financial water.
Ideally, we will have some sort of safety net in place. Whether it be a savings account or help from your family, it’s important to have a little squirrelled away for a rainy day. Realistically, however, this is not always possible.
So, ask yourself this: If you were slapped with a $1,000 bill tomorrow, would you have the money to cover it, without throwing the rest of your budget off? If you can say yes – congratulations and keep up the good work.
The rest of us, on the other hand, may need to look to alternative options.
Luckily, there is a heap of different ways to access credit. In particular, we are going to explore one of your options: payday loans online.
What are payday loans and how do they work?
Payday loans, as the name suggests, are loans designed to cover you until your next paycheque. In other words, these loans are often a quick and convenient solution to a temporary cash shortfall.
Payday loans usually refer to small unsecured loans worth $2,000 and under. Repayment terms may vary between lenders, but generally, people repay payday loans over a few weeks or months.
Moreover, payday lenders are often able to process your application quickly. Couple this with easy eligibility criteria and instant payday loans may be a fast financial lifeline in times of need.
Payday loans work like this:
- Apply online
Most payday lenders can be found online. Just a quick Google search will bring up hundreds, if not thousands, of results. Therefore, it is important you do a little research before picking a lender.
Once you’ve made your decision, head to their website to apply. Payday lenders often have an easy application process, so it may only take you a few minutes.
- Wait for an outcome
Payday lenders can all vary in how long it takes them to provide an outcome. Moreover, each application is different, so some people may receive an outcome quicker than others. Generally, however, you could expect an outcome from a few minutes to an hour after applying.
- Get your cash
Lenders will send through a contract if they feel they can make you an offer. Your funds are only transferred once you approve said contract.
From here, transfer times are quick. You can usually expect to see your money in your account the same day or the next business day at the latest.
How much can I borrow?
As mentioned above, payday loans may be a financial lifeline if you’re in a tough pinch. Moreover, these loans may be great for covering small yet unexpected or emergency expenses.
Depending on the lender, you may be able to borrow anything from $100 to $2,000.
How long do I have to repay payday loans?
In the past, borrower’s repayments would be automatically garnished from their future paycheques; hence the name payday.
These days, payday lenders might be able to offer longer repayment terms – it simply depends on the lender. Some lenders may give you 14 days, while others may offer several months.
Is everyone approved for payday loans?
Payday loans are, in general, easier to be approved for than traditional finance. In other words, you have a higher chance of being approved for a payday loan than a personal loan from a bank.
This is because payday lenders are often more accepting of bad credit history. In fact, some payday lenders may not consider your credit at all – this is known as a no credit check loan.
Despite this, not everybody is approved. In other words, payday loans are often relatively easy to qualify for, you are not guaranteed approval. After all, lenders will need to confirm you can repay your loan.
What do payday loans cost?
Payday loans are generally more costly than other types of finance. This is because offering small loans with such open eligibility criteria brings an added level of risk.
Keep in mind, it is not only the annual percentage rate (APR) that makes payday loans expensive. Moreover, if you miss repayments you will also be charged with additional fees. These penalty fees might quickly snowball into unmanageable debt.
So, while payday loans might be a lifeline in a tough financial situation, they should not be applied for thoughtlessly. Therefore, always weigh up your options before getting applying with payday lenders.
What happens if you default?
Payday loans are generally unsecured. This means the lender cannot repossess your asset if you fail to repay your loan.
This, however, does not mean you are free from recourse.
Any missed payments will be recorded on your credit file. Your credit score will, as a result, take a knock. While this may not seem like a huge deal initially, your ability to be approved for traditional mortgages or car loans may be affected by a poor credit score.
Furthermore, lenders may pass your account onto a debt collector if you default on the loan. Debt collectors are then legally able to recover the debt. In short, debt collectors are persistent and may repeatedly get in contact with you.
About the author
Seb Kirkpatrick is a content writer with a flair for finance and the fintech industry.