What is a Payday Loan?
So what is a payday loan? How much is the limit? What is the repayment period? What is the collateral?
Payday for most people means at the end of every month, or every two weeks for the lucky few.
For many, salaries or wages are hardly enough to cover expenses until the next paycheck.
Things such as investment opportunities or emergencies are prone to come up during this waiting time.
The response to such cases needs to be prompt – you may have to use part of your salary which is totally unplanned for.
This means you will require another source of cash that will enable you to meet your daily expenses till you get your next check.
This is when a payday loan comes in handy.
Short-Term Loans for Immediate Needs
A payday loan is a short-term unsecured loan with higher-than-usual interest rates because it is offered through a business, not a bank.
It is designed to help you pay for immediate expenses so the amount you get should be able to sustain you for a few days or weeks.
Payday loans are also known as payday advance, payroll loan, cash advance loan, or small dollar loan.
What is the Limit?
Since the amount given under this type of loan is supposed to last you a short period, lenders do not loan out a huge amount of money.
Most of them usually lend a maximum of five hundred dollars.
There are some key factors to consider.
Remember, it is a loan, so you have to spend it wisely.
Also, payday lenders charge a high-interest rate so the more you borrow, the more you will need to pay back.
Take a look at your daily expenses and eliminate what you can do without.
Once you get your daily figure, multiply it by the number of days before your next paycheck.
You can add a two-day expense amount on top of that just in case you experience a salary delay.
The result you get should be the ideal amount to apply for.
What is the Repayment Period?
The repayment period when it comes to a payday loan is quite short.
It is paid back on the borrower’s payday or when income is received from another source such as Social Security or a pension.
Payday loan lenders do not accept payment in installments. You are expected to write a check for the whole balance; the amount borrowed plus interest.
Also, remember that the lender does not care whether you can repay your balance and still meet your financial obligations.
As long as you signed a contract with them, then you are expected to honor your commitment.
What is the Collateral?
There is no collateral when it comes to this type of loan.
Security is required for longer periods but in this case, lenders mostly ask for a copy of your state issued I.D, a blank check from an active account in your name, and your most recent pay stub.
I hope the article answered your question about what is a payday loan.
Also, remember to do some due diligence on lenders before settling for one.
Disclaimer: This is not legal or financial advice. Please consult a legal or financial advisor for your specific situation.