A financial emergency and disaster can occur at any time. A payday loan can be your lifesaver if you do not have the needed money to deal with such disasters. If you need a small amount of money to cover your emergency expenses, you can get a payday loan instantly. On the one hand, qualifying for a payday loan is not as difficult. On the other hand, it is risky too because of the usury rates charged on small amounts of loans for a shorter period.
Let’s delve deeper into payday loans.
What is a payday loan?
Payday loans, commonly referred to as cash advances, are short-term loans with high-interest rates on small amounts of money. The usury rates and hidden costs charged on payday loans make borrowers get stuck in a debt trap. This debt trap makes it difficult to pay off your loan even if you borrow a small amount of money. Generally, borrowers use payday loans to cover emergency costs, unexpected bills, or other financial obligations. Getting a payday loan is easy if the consumer shows proof of a steady source of income. These loans are designed to help consumers get some quick money to hold them over until their next payday.
Basic requirements for getting a payday loan
As per the Consumer Financial Protection Bureau (CFPB), the borrower must meet the following requirements:
- The consumer must be at least 18 years old
- They must have an active checking account
- The borrower must have proof of income as well as valid identification
If the borrowers fulfill these eligibility criteria, their loan application can be approved within as few as 15 minutes. In most cases, borrowers are required to write a check for the loan amount and the lending cost. The payday lender holds on to that check for a predetermined due date and will cash it out when the loan is due.
How does a payday loan work?
You can qualify for a payday loan in minutes and get the loan amount instantly. It is as easy as pie. You just need to visit a payday lender’s office and walk out with a small amount of loan. As a pedal loan is a personal and unsecured loan, you do not need to give anything to the lender as security. However, the lender will ask for permission to electronically withdraw funds from your bank account when you get the next paycheck.
Payday lenders charge usury rates as they offer the loan without having any security. The majority of states have usury laws that limit the interest rate charged on borrowers, typically anywhere from 5 to 30%. However, payday lenders fall under the exempted category and are allowed to charge higher interest rates.
How hard is it to get a payday loan?
A payday loan is easier to qualify for if the borrower fulfills the basic requirements. However, they may be declined due to the following factors:
- No steady income: One of the main reasons a payday lender will decline your loan application is that you do not have a steady source of income. For an unemployed person, securing any kind of financing is much more difficult, even a short-term loan. Lenders want to be sure that the borrowers are in a financial situation where they can pay off the loan with an interest rate on time. An unemployed person is considered a risky borrower, and lenders are likely to turn these kinds of borrowers away.
- Poor credit score: Your credit score is major a determinant when qualifying for getting a payday loan. A low credit score is a negative sign for lenders, and they will most likely reject your loan application. Approval credit score might be because of taking out too many loans or defaulting on previous payments. If you have a bad credit score, you will have to struggle to get a payday loan or other kinds of financing.
- Gambling habit: A payday lender will likely decline a loan application if the borrower has a gambling habit. If your statements show frequent transactions on gambling sites, the lender will refuse to lend you money because they will never want to put their money at risk. A payday lender will never risk their loaned money on gambling and potentially not being paid back.
Getting a payday loan becomes hard if you have no steady income and have a bad credit score or gambling habit. Otherwise, you can get it instantly.