A wise man once said, “If you want to buy something, there is bound to be a loan to help you do so.” While the name of that wise man escapes us at the moment, he definitely wasn’t wrong.
It can be hard to find something where a loan isn’t an option. Even once you get into different types of loans, there seem to be plenty of different subcategories and options for you.
Some loans are long-term and others are short-term. When we’re talking really short-term, you might have heard people talk about payday loans. They’re one of the most common loans in the country, with around 12 million Americans using the option every year.
But what exactly are payday loans? Are you eligible for one? How do you get one? Where do you even go?
Below, we’re going to run through all the basic things you need to know about payday loans. Just don’t expect any tips on where to get a delicious Payday candy bar.
What exactly are payday loans?
There are plenty of various short-term loan options out there, but payday loans are far and away the most common out of all the options. The idea behind a payday loan lies in the name: you get an advance on your payday and they’re due on your payday.
So you, as the borrower, will write a personal check to the lender for the amount plus a small charge in exchange for cash. The lender will hold the check until your next payday. For payment, you can either let them deposit the check on that day, go back and pay in cash, or let them charge the financing fee and have the loan roll over until your next payday.
Financing charges are pretty small, usually between $15-30. The typical loan lasts about two weeks (the ideal pay period).
Payday loans are usually pretty small, ranging from $100-1000 maximum. This depends on the state, but that’s what you can generally expect.
Seems like the interest rate must be pretty high, right?
Ding ding ding! While these loans are incredibly convenient and very easy to obtain, the interest rates on them are quite high if you don’t pay the loan back on time. How high you might be wondering? Generally between 390-780% APR, depending on the loan institution and state, of course.
Is anyone eligible for one?
Just about everyone, yes. Payday loan institutions aren’t like banks and other places that may ask plenty of questions about your intent with the loan and other supporting documents. Maybe you need it to get your car fixed or purchase something for your business. Who knows?
For someone to be eligible for a loan, all you need to have is an open bank account, regular income, and some identification. No credit check, background check, or other random documents you may be asked to provide.
For your income, they might ask for pay stubs or a recent bank account statement so make sure you have those printed off ahead of time. If you’re currently unemployed, you can use something like disability or Social Security to prove your income.
Where do I go for a payday loan?
Currently, there are thousands of payday loan buildings across the country. You can just try walking up to one, but it’s best to do a bit of research before checking out payday loan places.
Sometimes, these stores also offer other various finance options, such as check cashing, title loans, pawn shops, and more.
Even though there are thousands of places all around the country, your state may vary in what kind of options are out there for you. HIgh cost payday lending is authorized in just 32 states. 15 states have some kind of protection in place for borrowers. Online payday lending isn’t available in all states either.
Are there risks with payday loans?
Just as with any loans, there are risks attached. Defaulting on your loan is a way to get hit with super high interest rates while constantly moving your payday loan payment date back is a way to fall into a debt circle.
As always, it’s never advisable to take a loan you won’t be able to pay back. Make sure you have the financial means to pay off the loan before you decide to take one out.