What You Need To Know About Payday Loans

Some expenses creep up on you unexpectedly and start piling up, leaving you scrambling to figure out how to account for them. When even your emergency savings are running out, payday loans can come to your rescue.

However, this means of attaining quick money can turn into debt even faster if you’re not familiar with the workings of payday loans in your country. In this article, we’ll introduce you to payday loans, touching upon what they are and how they work so that you can avoid becoming a victim of the debt trap. 

What Is A Payday Loan?

A payday loan refers to a loan borrowed by a third party that has a high-interest rate and needs to be paid back in a short period of time, typically in a two-week payday cycle. The loan is dependent on the amount of income you earn, with the borrowing limit being half of your net monthly salary in most provinces. 

This is because many individuals are paid by their employers on a bi-weekly basis, and payday loans are there to pick up the slack until your next payday. By this time, you are expected to pay off the whole loan, the interest rate on it, and any other fees altogether. 

Getting A Payday Loan

Getting a payday loan is not a complicated process; all you require is a job, your identification information, a bank account, and an approved permanent address. However, sometimes you can obtain this loan even if you don’t meet certain requirements as some lenders are not strict about it.

You’ll either receive cash in hand, have money deposited straight into your account or the lender will provide you with a prepaid card for use. The prepaid card has the disadvantage of requiring an activation fee to be paid for it to work. 

When it’s time for you to pay back the loan, the money will either be directly withdrawn from your bank account, or a post-dated cheque given by you in the beginning to the lender will be cashed out. 

Paying Back Payday Loans

Limited credit choices mainly drive individuals to seek out a payday loan in the first place. There are a few ways you can go about paying back your payday loan: you can check whether you are eligible for a personal instalment loan to pay off the payday loan and other high-interest debt that’s been burdening you since the repayment term is longer.

In case your bank refuses to lend you the money, you can turn to a private or subprime lender. Though they’ll most likely offer higher rates on the payday loans than your bank, it’ll still be far less than your collective payday loan

Endnote

A payday loan is meant to be a short-term solution. There are many reasons one might apply for a payday loan, but this type of loan should be approached with caution, especially if you think you’ll have a hard time paying it back on time. It’s important that you think through your decision before taking out a payday loan since interest rates are extremely high and can cause you a lot more trouble than it is worth.

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