Understanding Payday Loans And How They Work
When you are a little short on cash or you need some money for a bill between paychecks, you may need to find a way to borrow against your expected income. One of the most common ways people do this is to take out a payday loan, but before you do that, make sure you understand the process and the fees associated with the loan.
Understanding Payday Loans
A payday loan is a lot like a cash advance based on your expected income. In most cases, the loan amount is determined by the amount of money you make every payday because the lender requires the loan to be paid off on your payday. When you apply for the loan, the loan company will determine the amount of the loan they can offer, and they will more than likely give it to you in cash.
Understanding the Fees
Payday loans often use fees instead of interest rates because they are extremely short-term loans. The interest rate on a small, one- or two-week loan would have to be very high for the company to make money but if they add a service fee to the loan amount, they can control how much return they have on the loan. The fees can be pretty high, but if you need the loan bad enough, it may be worth paying the fees to get the money now.
Credit and Payday Loans
One of the benefits of taking out a payday loan is that the loan is not based on your credit. The loan is based on your earnings, and many payday loan companies require a post-dated check for the balance of the loan so if you do not come in on payday, they can cash the checks and get their money back. The verification process uses past pay stubs to show your income so payday loan companies don't need to do credit checks.
Taking Repeat Loans Out
When you take out a payday loan, you can only take out what you can pay back on payday. If you make three hundred dollars a week and the loan fee is fifty dollars, you will only be able to get two hundred and fifty dollars on your loan. Some companies will let you take out repeated loans, but be careful about doing that. Only take out what you need, pay it off as soon as you can, and try not to take another loan out, or reduce the amount so it is easier to pay off next time.
For more information on payday loans, contact a company like American Cash Advance and Title Loan.