Unexpected expenses are an unfortunate but common part of life. Cars break down, people lose their jobs, and medical bills pop up. If you don’t have an emergency fund for issues like these, you may end up in a difficult financial situation and need a cash advance. 

According to a Federal Reserve report from 2019, 40 percent of Americans wouldn’t be able to cover an unexpected expense of $400. And while two-thirds of those people stated they would have to sell something or borrow the money, one-third said they wouldn’t be able to get needed funds at all.

Taking out a loan is one option during financial hardships, but that can be difficult without a decent credit score. For people with less-than-perfect credit, a payday loan may be their only choice. 

By design, payday loans are meant to cover short-term financial needs and intended for people in desperate financial situations. If you do your homework, know the terms of the agreement, and find a reputable lender, a payday loan may be the right choice for you.

What Is a Payday Loan?

Payday loans are short-term, small-dollar loans meant to help people make it to their next payday. They typically carry higher interest rates than other loan products, and are primarily used by people with bad credit scores.

Payday loans are unsecured, meaning they don’t require any collateral in order to get one. This means that the interest rates are higher, because the lender isn’t guaranteed to make back their money if the customer can’t repay the loan. 

Payday loans are usually for $500 or less, but the amounts vary depending on the state you live in, among other factors. The repayment term for payday cash loans is usually only two weeks, and they’re meant to be paid off in one lump sum at the end of the term.

How Do Payday Loans Work?

There are a couple ways you can get a payday loan: through a storefront payday lender, or payday loans online. The money will be provided either electronically to your checking account, by cash or check, or on a prepaid debit card. It can be easy to get an online payday loan nowadays.

Once you take out a payday loan you generally have two weeks to repay it, but some payday lenders may offer loans with terms up to four weeks. After the loan term is up you will pay back the borrowed loan amount plus any additional fees. The lender may require you to pay them back with a post-dated check for the agreed upon amount, or by pulling the funds directly from your bank account.

Loan terms for payday loans will vary from person to person, and based on where you live. Some payday lenders may check your credit score to determine whether they’d like to lend to you, while others may not.

The Costs of Payday Loans

Payday loans are known for having higher APR’s than some alternatives to payday lending. This is because payday loan customers generally have low credit scores, which means they may have difficulty repaying the loan on time. 

If a customer isn’t able to repay the loan on the due date, the lender will usually offer to “rollover” the loan to a new term. This is when they extend the loan and give the customer a new due date, but in doing so they add more fees and interest rates that increase the debt that needs to be repaid. This is one reason to make sure you can repay your loan on the original due date before you sign for it. If you need a loan for more than 30 days it’s better to look for other sources of cash. Rolling your loan over can rack up a lot of additional fees and make it more difficult to pay off the loan. 

It’s important to be sure you can repay the loan, as lenders aren’t usually required to confirm your ability to repay. In order to avoid additional fees and rollover, make sure you can pay the fast cash loans on the due date, while also taking care of any other financial obligations.

Advantages of Payday Loans

Payday loans or cash advance loans are a popular choice for small, short-term loans due to their speed and convenience. The loan application process is usually simple and quick, and lenders often provide the money right away. 

If you only need a little bit of fast cash for bills or an emergency expense, a payday loan may be the right option for you. As long as you’re able to pay back the full loan amount plus fees when it’s due, you may want to apply for a payday loan. You can also get a loan online and that makes the loan process extremely easy and fast.

Payday Loan Rules and Financial Institution Regulations

Each state regulates payday loans differently. The length of the loan, the amount you can borrow, and the annual percentage rate and finance charges are all different depending on which state you’re in.  

Each year millions of Americans take out payday loans. With tighter regulations, transparent terms and fees, and customer education, payday loans are quickly becoming a better solution for customers in need.

The Bottom Line

In order to get the best and safest deal possible, it is essential to be informed before taking out a payday loan. You need a trustworthy lender who is transparent about the terms, conditions, and costs associated with their loans. Make sure to ask questions, read the agreement, and know how much you’ll owe before you sign for a payday loan. You also need to have a plan for paying back your loan prior to taking it out.

At CreditNinja, we specialize in offering quick, reliable solutions that help your financial situation. To learn more about your options, visit us or apply online at CreditNinja.com.¹

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  1. https://www.federalreserve.gov/newsevents/pressreleases/other20190523b.htm
  2. https://www.consumerfinance.gov/ask-cfpb/what-is-a-payday-loan-en-1567/