Payday loans are a type of short-term, high-interest loan that is typically used to pay for unexpected financial emergencies. While payday loans can provide quick access to cash when you need it, they can also come with significant costs and risks.
According to a study by the Consumer Financial Protection Bureau, about 80% of payday loans are rolled over or renewed within two weeks, meaning that borrowers are taking out new loans to pay off old ones and incurring additional fees and interest charges. This cycle of debt can lead to financial hardship and make it difficult to get out of debt. However, payday loans can also provide many unexpected benefits, which this article aims to detail.
What Are Payday Loans?
Payday loans are short term loans that are meant to be repaid on your next payday. These types of loans are designed to be used to cover unexpected expenses or emergencies. Examples include sudden medical bills, funeral costs or vet fees to name a few.
The approval process for a payday loan can vary depending on the lender but in most cases you will receive a decision within a few minutes or hours after submitting your application. The amount you can borrow with a payday loan will vary depending on the lender and your income. However, most payday loans range from a few hundred dollars to a few thousand dollars.
What Are The Benefits Of Payday Loans In Unexpected Situations?
There are several benefits of payday loans in unexpected situations, which include:
Quick Access to Cash
Payday loans are designed to be quick and easy to access. Many lenders offer online applications, and you can typically get approved within minutes. The money often arrives in your account within 24 hours on weekdays. This fast access is hugely beneficial for people who need money in a financial emergency.
No Credit Check Required
Payday loans do not require a credit check, so even if you have poor credit or no credit history you may still be eligible for a loan. This comes in handy for people who need money now but do not have a good credit score, as most loans require good credit.
You can use the funds from a payday loan for any purpose such as car repairs, boiler repairs, health bills or utility bills. However, it goes without saying that payday loans should not be used for frivolous spending such as shopping or partying.
Repayment is typically due on your next payday. This means that you will not have to worry about making monthly payments over an extended period, which can be difficult to budget.
Option To Avoid Fees
If you need to pay a bill or expense but do not have the funds, a payday loan can help you avoid late fees and other penalties. They are designed to offer borrowers temporary financial relief to help them through a difficult period.
Are There Any Downsides To Payday Loans?
Yes, payday loans come with some risks and downsides, such as:
- High interest rates: Payday loans typically come with very high interest rates, which can make it difficult for borrowers to pay back the loan on time and in full. However, this varies state by state, so you could very easily get a good deal.
- Short repayment periods: Payday loans usually require repayment within a few weeks, which can be challenging for borrowers who are already struggling to make ends meet. Again, some states have varying laws about this.
- Fees and charges: In addition to interest rates, payday lenders may charge fees for late payments, loan origination, or other services, which can add up quickly and make the loan even more expensive.
- Risk of debt cycle: Because of the high costs and short repayment periods, some borrowers may find themselves trapped in a cycle of debt, taking out new loans to pay off old ones and incurring even more fees and interest charges.
You should only take out a payday loan if you are confident that you can repay it on time. If you miss a payment, you could incur additional fees and damage your credit score rating.
Can I Get A Payday Loan If I Have A Bankruptcy On My Record?
Yes, it is possible to get a payday loan if you have a bankruptcy on your record, but it may affect the interest rate and fees you are charged. People with worse credit history may be subject to higher interest rates, or might be expected to offer some form of collateral against the loan such as their home or car.
Payday lenders typically require applicants to have a steady source of income such as a job or regular government benefits. If you have recently filed for bankruptcy, you may need to provide additional documentation to prove your income and financial stability, such as tax returns or bank statements.
How Often Can I Take Out A Payday Loan?
There is no set limit on how often you can take out a payday loan, but it is generally not recommended to rely on payday loans as a long-term solution. This is because relying on payday loans can land you in a cycle of debt which often results in bankruptcy.
Only take out a payday loan if you are sure that you absolutely need it and can repay it. If you find yourself needing to take out multiple payday loans, it may be a sign of financial trouble, and you should seek help from a credit counselor.
Can I Get A Payday Loan If I Am Unemployed?
It is unlikely that you will be able to get a loan if you are unemployed. Payday lenders typically require proof of income, such as a pay stub or bank statement, to approve a loan. This is to provide some assurance to the bank that you will be capable of paying off your loan. However, it can be worth applying just in case. Applying for a quote using our calculator will not affect your credit score.
Can I Get A Payday Loan If I Am Self-Employed?
Yes, it is possible to get a payday loan if you are self-employed. However, the requirements may vary depending on the lender’s policies and regulations in your state or country.
In general, payday lenders require applicants to provide proof of income, which can include:
- Pay stubs
- Bank statements
- Tax returns.
As a self-employed individual, you may need to provide additional documentation, such as profit and loss statements or business tax returns, to verify your income.
Can I Cancel A Payday Loan After I’ve Been Approved?
The deadline and process for canceling a payday loan can vary depending on the lender and the laws in your area. In most cases, you have the right to cancel a payday loan within a certain time frame after being approved. For instance, the cooling off period to cancel a payday loan in Manitoba is 48 hours, excluding Sundays and public holidays. You should always review the terms of your loan and contact the lender as soon as possible if you need to cancel the loan.