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Payday Loans: What Are They Exactly?

Are you having trouble making ends meet each month? Looking to take out a loan, but seeking a short-term, immediate alternative? Running into a situation that your electrical bill (water bill or whatnot) is due or your car is about to be repossessed…Let a payday loan help you!

Instead of waiting for your next payday, this type of loans allows you to get money immediately and can be paid off on your next payday. Today payday loans become increasingly popular. This is because the requirements for these loans are few and the chances of being approved are very high.

Well, what are payday loans?

Payday loans, also known as paycheck advances, are typically small, short-term loans with amounts usually ranging from $100 to $1,500. Lenders sometimes market these loans as cash advance loans, although that term can also refer to cash offered against a prearranged line of credit like a credit card and a charge card.

The approval may be done in a few minutes or hours and this type of the loan is usually paid off on your next payday. The money is available at either check-cashing centers or online. Additionally, as payday loans carry substantial risk to the lender, a high original fee is applied to these loans. Generally speaking, borrowers will be charged $15 and as much as $30 for every $100 borrowed. The original fee varies from lender to lender.

When you request such a loan, you have the option to write a check in the amount of the loan plus the fee. The lender will accordingly give you cash and hold your check through to your next payday. You can also choose to sign over electronic access to your bank account to receive and repay the loan. In this case, the lender will deposit the loan into your account electronically and withdraw the payment in the same way. If you are unable to repay the loan within the term of the loan, you can choose to extend it till another payday with added fees.

Are you eligible for a payday loan?

Actually, there are no strict criteria applied to qualify for a payday loan. As long as you are over 18 years of age, have a permanent job and possess a bank account, you would be considered eligible. Sometimes, these loans are also provided to those who don’t have bank account. For some lenders, applicants who are just at the age of 18 years old are also considered qualified. For some, other income forms such as unemployment benefits and income from state of federal assistance (like disability payments) are also accepted.

Having said that: most people could qualify for a payday loan. But, to really get such a loan, you need to make some sufficient preparations. Here is what you actually need to obtain payday loans.

Identification – Borrowers are required to produce proper identity documents. Generally, government-issued photo identification is required, like driver’s license, U.S. permanent resident cards (commonly known as green cards) and official passports.

Income Proof – To get a payday loan, borrowers also need to present proof of steady income. Some lenders also require a minimum income amount (usually at least $1,000 for no less than 3 months) to be eligible for a loan. If you are unemployed but have regular income from other reliable sources, your application may also be approved. Do remember to present the proof as well. Be aware that lenders may also approve applications from recipients of Social Security checks.

Checking Account – As is often the case, an active checking account is also required. That’s because borrowers have to offer a signed check in the amount of the loan, plus the original fee, when they sign the loan contract and receive the loan funds. On the loan’s repayment date (that is also the borrower’s payday), the lender can get the payment with the check at the borrower’s bank. As an alternative to this procedure, borrowers can sign an authorization for the lender to debit their checking account for the total money borrowed plus other fees.

Additional Requirements – In some states, there are also additional requirements. For instance, a person may not borrow from a payday lender if she/he has another unpaid payday loan with another lender. In other cases, a particular period must pass since the repayment of a payday loan before a borrower can reapply for another.

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