Did you know that approximately 12 million Americans use payday loans annually, and the average payday loan is $375 for a two-week term?
Most people take out payday loans to pay their monthly expenses when the unexpected occurs. If you’re considering a payday loan, it’s essential to learn more about payday loans, including the benefits. This way, you’ll understand the requirements and how these loans can help you long-term.
In this guide, you’ll learn everything you need to know about payday loans and seven benefits you need to be aware of.
To better understand the benefits of payday loans, you’ll first need to learn how payday loans work.
A payday loan is a short-term loan. Payday loans are also small loans, $500 or less, that need to be repaid when you receive your next paycheck. Some payday loans will allow you to borrow up to $1,000.
You’ll only need proof of identification, regular income, and a valid bank account to get a payday loan. Some lenders may also require you to have credit in your name, like a credit card.
If you work as a traditional employee, you can simply provide your paystubs. If you freelance or own a business, you’ll need to show your tax returns or financial statements showing your annual revenue.
Although it isn’t common, some payday lenders will do what’s known as a hard credit inquiry. Hard credit inquiries occur when any financial institution, like a payday lender, checks your credit before making a loan decision.
Too many hard credit inquiries can lower your credit score long-term. However, a single hard credit inquiry or a few inquiries in the same time frame to compare rates typically won’t impact your score too much.
Although the impact of a few inquiries can be minimal, it’s essential to be mindful of applying for too many loans. Doing this causes lenders to look at you as a high-risk customer due to the number of times you apply for loans.
The good news is that even if a payday lender checks your credit score, it doesn’t play a significant factor in getting approved for a payday loan.
Once you apply online for a payday loan, the lender will confirm your checking account information and income. Usually, the lender will ask for permission to electronically withdraw the money from your bank account when the loan is due.
You’ll have anywhere between two weeks to a month to pay the loan back, depending on when you get your next paycheck.
Once you complete the application and provide the necessary documentation, you can get a quick loan online in less than an hour.
In some states, payday lenders allow you to roll over your loan into a new loan. With these loans, you only pay the fees while the due date for the original loan amount is extended.
Rollover payday loans give you more time to repay the loan without missed payments affecting your credit. However, you’ll pay more fees if you opt for this type of payday loan since the fees will continue to add up.
It’s essential to realize that payday loans have high-interest rates. Usually, fees range from $10 to $30 for every $100 your borrow. If you get a two-week payday loan and pay $15, the interest rate is 15%.
However, if you borrow $100 and don’t pay it back for a month, you’ll be paying a much higher interest rate. Some payday loan interest rates can be as high as 400%. So, looking into the interest rates before you apply is crucial. This way, you’ll know exactly what you need to pay back when the loan term ends.
The state you live in may have specific laws or statutes that regulate payday lending. In fact, 37 states have specific laws regulating how much money you can borrow and cap interest rates.
In addition, some states require payday lenders to have a license to operate. Unlicensed lenders don’t have the right to collect any payments from a consumer with a loan. Since every state is different, you’ll need to do your due diligence.
You can find information about your state’s payday lending regulations here. Learning this information will also help you determine the maximum loan term a payday loan can have in your state. Also, you’ll get detailed information about payday loan finance charges in each state.
Even though payday loans involve higher interest rates, there are many benefits to payday loans that you might not be aware of. Knowing more about these benefits will allow you to make a more informed decision about applying for a payday loan.
These benefits include:
One of the most significant benefits of a payday loan is that you don’t need a good credit score to qualify. Instead, online lenders offering payday loans are more interested in whether you can repay the loan.
If you have a poor credit history, you’ll struggle to qualify for most types of traditional loans, like a personal loan from your bank. This is because these lenders have stricter credit requirements, which include a good credit score.
Although credit requirements vary, you’ll usually need a good credit score to qualify for a personal loan. A good credit score is between 690 to 719. A score over 700 can help you get a lower interest rate.
Remember that meeting the minimum credit score requirement doesn’t always qualify you for a loan. This is because lenders consider other factors like your overall credit history and debt-to-income ratio.
All in all, if you have a lower credit score, payday loans can give you options that you wouldn’t have otherwise.
Another benefit to payday loans is that you won’t have to worry about them long-term. Some personal loans can have payments that range from 60 to 72 months.
While many people apply for personal loans to pay off more significant debts, having payments for an extended period can become a burden for some people.
When you choose a reputable payday lender and are aware of the fees, you’ll know exactly what to expect throughout the month. If you pay the loan off by your next paycheck, you don’t have to worry about future payments.
In addition, if you need to take another payday loan out in the future, the payday loans you paid off won’t affect your ability to take another payday loan.
Payday loans can also help you get through emergency situations by quickly giving you access to the funds you need.
If you need to make emergency car repairs or pay an unexpected bill, you can apply for a payday loan and receive the money in your account within minutes to an hour.
Payday loans are also helpful to pay for an emergency veterinarian bill or an unforeseen health problem. They can even tie you over if you need to wait longer for a paycheck
While it seems that payday loans would cost you more, they can save you money in the long run.
When you don’t have enough money to cover basic monthly expenses, you can risk incurring overdraft fees in your bank account. Typically, banks charge approximately $35 for each overdraft, and you can be charged multiple overdraft fees in one day.
It’s all too easy to overdraw your account. Using your debit card, withdrawing cash, and having automatic bill payments can all cause many overdraft fees at once.
There are also different types of overdraft fees, like insufficient funds fees (NSF) and extended overdraft fees. Extended overdraft fees occur when your account is in the negative for 5 to 7 days.
In addition, missing your credit card payment will cause you to incur late fees, and you’ll owe more money due to higher interest rates.
Using a payday loan to bridge this gap can prevent bank overdraft fees from piling up and keep your credit card payments current. Not only does this save you money, but it can also improve your credit score since delinquent accounts are reported to credit bureaus.
Payday loans are unsecured, meaning that you don’t need any collateral to qualify for a payday loan. Usually, your home or a vehicle you own outright would serve as collateral for a loan.
When you apply for a secured personal loan, you’ll have to use collateral to qualify for the loan. You can lose your home, vehicle, or other valuable assets if you can’t make your loan payments.
In addition, people with a poor credit history may only be able to qualify for a secured loan, which puts their assets at risk. The great thing about a payday loan is that you can qualify with bad credit without worrying about losing your assets.
One of the most significant advantages of payday loans is their convenience. With traditional loans, you must go to the bank during regular business hours. Then, you must fill out an application and provide documents to the bank.
You’ll also need to wait to schedule an appointment with a loan specialist at your bank to discuss the application. In addition, you’ll have to wait anywhere from a day to a week to see if you’re approved.
In some cases, this process can take up to two weeks if the bank requires additional documentation.
With payday loans, you can apply for a loan 24 hours a day from anywhere with an internet connection. You don’t have to worry about leaving your house and spending time and money driving to your bank.
Many payday lenders also have apps that make this process even more accessible.
Payday loans require less paperwork than traditional loans do. You’ll fill out a quick online application and only need to provide your ID, proof of income, and bank account information. The approval process occurs instantly, and you’ll have your money within hours.
Although paying off debt early may seem like a smart solution, it’s not always the case with loans. Prepayment penalties are fees a lender charges if the borrower pays off the loan before the official loan term ends.
This is because lenders count on the interest they earn from the money you borrow. As a result, a lender can charge you prepayment penalties in a few different ways.
Flat fees involve a set dollar amount regardless of your remaining balance. For interest-based fees, a lender will charge interest for a specific time frame when you pay off your loan early. For example, you could end up paying 12 months’ worth of interest.
Finally, there are fees based on the percentage of the remaining balance, which are the most common.
On the other hand, payday loans don’t have prepayment penalties associated with them. This means you can pay off your payday loan as quickly as possible and not be penalized. You’ll also save money on interest fees when you pay off a payday loan before the due date.
If you’re looking for a quick loan to pay off as soon as possible, you can turn to payday loans to avoid prepayment fees.
Now that you understand more about payday loan benefits and how they work, you’ll be more prepared to apply for a payday loan online.
Remember to do your research to find reputable lenders and make sure you understand the loan terms and interest percentage rates before you apply.
If you’re still looking for trustworthy online lenders, you can turn to FastLoanDirect for all your payday loan needs. We offer personal loans from $100 to $35,000, with interest rates ranging from 5.99% to 35.99% and varying loan terms.
When you fill out our online form, you’ll get connected with a variety of lenders and loan options to choose from. Make sure to visit us online today to get started!