Now that many lenders offer same-day funding, it may only take one day or less to get your cash from a payday loan. Payday loans can be found online or at storefront locations. And many of these lenders offer fast funding if you’re approved for a loan. But just because you can take out a payday loan, doesn’t mean you should.
A payday loan is a short-term financial product where a borrower receives a small amount of cash and repays it on their next payday, hence the name. The amount you can get from a payday loan is usually small, compared to other types of personal loans. You may only be approved for a few hundred dollars.
These loans tend to carry high interest rates. This, combined with the short repayment period can make them difficult to pay back on time. Usually, a payday loan repayment period is only two weeks long. And if a borrower can’t repay the loan on the due date, the lender will usually offer a “rollover.”
Rollover is the financial practice of extending the life of the loan, while also adding more fees and interest in the process. For instance, if a borrower can’t repay the entire loan on the due date, the lender may allow them to just pay the interest and add another loan term to the contract. This means that they may have another two weeks to repay the principal, but they’ll also be paying the interest again as well.
This can lead to some borrowers being trapped in a cycle of debt, where every two weeks they’re only paying the interest on the loan. This is why it’s so important to make sure you can repay the loan in full, on the due date, before you sign for it.
Personal loans can be a great tool for you and your financial journey. Unfortunately, there are many lenders out there that may be trying to take advantage of borrowers in need. Knowing how they operate, and what to watch out for can save you a lot of money in the long run.