What is A Payday Loan?
How Do Payday Loans Work?
Payday loans are like traditional, personal loans that you might get from a bank, only the requirements for getting approval for the loan are not nearly as stringent or time-consuming as seeking a loan from a bank or credit union. Often payday lenders do not even check your credit or FICO score before approving you for a loan.
Payday lenders have varying requirements for approval, but most of them follow the basic formula of requiring that you:
- Be a citizen
- Have a job with a minimal amount of monthly income
- Have a bank account in good standing (it cannot carry a negative balance)
Other requirements vary by lender and there may be other incentives or rates to entice you to choose one payday lender over the other.
Fees
Payday lenders typically offer by charging a fee that is attached directly to the amount you have to pay back for the loan. These fees can vary from lender to lender and based on the terms of the loan you request. For example; if you choose a 2 week loan for a lender that charges $15 per $100 you borrow and you borrow $400, you will be expected to pay back $460 at the end of the two week period. This payback is usually accomplished with a post-dated check that you give to the payday lender, or perhaps by authorizing them to automatically debit the amount from your bank account.
Under some circumstances, if you find yourself unable to pay back a loan at the appointed time, you can request an extension, which would have the payday lender apply a new fee to the loan and perhaps a small penalty. Sometimes the payday lender will also require that you pay back part of the loan - usually the fees - as a condition of extending the loan. Most lenders will limit the number of extensions you can have on any one loan. Along with getting a payday loan, proper money management is very crucial to keeping finances inorder. Payday loan budgeting tips have been given to help you with keeping your finances in order.
