Bad Credit Loans – Reality or Myth
Payday loans are short-term loans that are typically due on your next payday. These loans are also called cash advance loans or check advance loans. They are usually advertised as a means to fund unexpected emergencies that crop up a few days before the month’s end, when you are short of cash. Unlike other personal loans these are arranged over days and not years, hence you can use them as a stop gap before your wages arrive.
How Payday Loans Work?
A payday loan can be approved within a matter of hours and there is typically no credit check. The borrower typically writes a post-dated personal check in the amount they wish to borrow plus a fee in exchange for cash. The lender holds onto the check and cashes it at the agreed upon date, usually the borrower’s next payday or another agreeable date within the next couple of weeks when you figure you’ll be able to repay your loan. Most loans are for 30 days or less and can be rolled over for additional finance charges.
Know Your Rights and Responsibilities
Consumers need to understand their rights and responsibilities when taking out a payday loan by direct lenders. These include:
- Before committing to and signing the loan documents, make sure your lender provides all information regarding the expenses; including but not limited to, interest rate, APRs, finance charges, loan extension fees, etc. You must be allowed to fully understand what the loan will cost you.
- If a lender or broker is not licensed at the time of the agreement or if a lender does not give you a copy of the agreement at the time of signing, or if a broker requests payment for assisting you, there are no costs to borrow.
- There is a specific period to cancel your loan. Generally, it is two days, but the time may vary with companies.
- If you cancel the agreement, the lender must refund all payments, return all post-dated cheques or pre-authorize debits and destroy any pre-authorization.
- Your payday loan has limitations concerning the amount of money you can get. They are always connected with your income and depend on how much you earn per month. But the maximum amount can’t be more than 1000 $.
- You have the right to refuse to have a salary assignment. But to do this you should inform your lender first.
In general, payday loans have high interest rates. You end up paying an annual percentage rate (APR) that may be several hundred percent. For example, you might pay a $20 fee to borrow $100.00 for two weeks. According to the Consumer Federation of America, you would pay about 426% APR on a payday loan, though paying an APR above 1000% is not unheard of.
Often times the rates are much higher than other types of loans, and can put you in even more debt. For example, a $500 cash advance on an average credit card that is repaid in one month would cost you $13.99 in finance charges and an annual interest rate of about 5.7%. A payday loan, on the other hand, would cost you $17.50 per $100 for borrowing the same $500, and 400% annual interest.
You Can Avoid Paying a Lot of Extra Money
Even if your loan APR is on the higher end, it is absolutely possible to avoid paying a lot of extra money. In a nutshell, the sooner you pay back your loan, the less interest you will be paying. When you have interest building over time, it only makes sense to pool resources and hustle to get everything paid off. Create a plan and be able to stick to if to avoid additional fees and growing interest rates.
Avoid the Payday Loans Trap
If you can’t repay a payday loan, the payday lender may tempt you with an extension period known as a rollover, or even a further loan. However, the lender must give you an information sheet with details of providers of free debt advice, before you roll over a loan. Rolling over your payday loan can quickly lead to problems, because you’ll have to pay back much more in interest and other fees.
Familiarize Yourself with State Laws
State laws and other factors can influence how much you can borrow and the fees you are charged. Traditionally, states have capped small loan rates at 24 to 48 percent annual interest and at legal maximums of between $100-$1,000.
Many states also have criminal usury laws to protect consumers. Payday loans at triple-digit rates and due in full on the next payday are legal in states where legislatures either deregulated small loans or exempted payday loans from traditional small loan or usury laws. Some states don’t have payday lending store fronts because these loans aren’t permitted by the state’s law, or because payday loan lenders may choose not to do business in a state rather than abide by the states’ regulations.
Bad Credit Payday Loans Guaranteed approval? A Myth
No loan can be guaranteed even if you have the best credit score. Each lender still makes checks and is well within their own right to decline the loan for whatever reason they see fit. A guarantee would certainly draw a lot of business, especially amongst those seeking for unsecured personal loans with bad credit. But think about what a guaranteed loan approval by direct lenders, actually means. In effect, it is about giving money away to borrowers, and paying no heed at all to the reasonable risks of loan default. This is impractical, and a bad credit loan guarantee cannot be realistically given by a lender as they are in the business of turning a profit.
Bad Credit, No Problem.
One major factor that keeps many people from borrowing is their history. Conventional lenders like banks do not cater to people with low, bad, or no credit. There may be steps you can take to slowly improve your score, but that doesn’t help when you need immediate cash. If that is the unfortunate situation you find yourself in, there’s good news. Payday loans.
Payday loans aren’t like mortgage or auto loans. They’re unsecured personal loans for small amounts for people in need of temporary financial assistance. The lenders know this, and are open to lending to people with less-than-stellar credit ratings. In most cases, loans are based on income and other signals. Most lenders don’t even use a traditional credit check. However, for larger amounts some lenders may use your credit report to make a lending decision.
How Do You Apply for Bad Credit Personal Loans?
The application takes only a few minutes. The application is done online using a smartphone or a computer and loan decisions are instant. If your loan is approved by direct lenders, your funds will be deposited to your account within one business day. To apply you’ll need:
- Your name.
- Social security number or identification information.
- Proof of income.
- An active email address.
- Your current phone number.
- A checking account that can accept electronic transfers.
Payday loans can offer you a way to get quick access to cash. Whether you need to get your car repaired or pay off a forgotten bill, these loans are designed to cover you when you’re caught short before payday. Before you decide to take out a payday loan it’s important to understand how they work, your rights and responsibilities as well as what interest rates are charged.