Things to consider when applying for a Payday Loan

There are moments in life when your work-home-sleep cycle is never ending, and the bills come on top of it. Demoralizing, right? The life passes by us and it seems like we forget to actually live it.

Sometimes, all you want is to treat yourself to a weekend away with your partner, a shopping spree during the end of season sale or to finally get that gadget you’ve been eyeing for the last few months but never got a chance to buying because your savings were simply not enough. Sounds familiar? This is where payday loans can be of great help.

However, before you go out and get one, here’s some information and a few things to remember before applying for such a loan.

A payday loan, also called a salary loan, is a short term unsecured loan that the borrower signs up to repay on the day of their next pay check (even though this is no longer a requirement) along with the interest.

Just like any other loan, a pay day loan consists of 3 components:

  • Amount to borrow
  • Interest Rate
  • Timeline
  1. Amount to borrow. Some banks give you a line of credit or salary early up to 2.5 times of your net salary. Advance salary loans are usually offered for a short period of time ranging from 3 to 12 months, but some credit facilities give you an extended timeline. These loans must be repaid in equal monthly installments leading to NIL outstanding balance.

Important: The cash amount is often determined by both your net income and the state that you currently reside in. Each state has its own set of regulations that determine the highest amount of money one can borrow and for how long. Based on the above, your credit institution of choice will decide whether you qualify for a loan. The good news is that you do not always need to have a collateral to obtain a loan, but you do need to have some kind of stable income to qualify for one. Make sure to check the credit-related laws in your state before you apply for any loan!

  1. Interest rate. Salary loans usually have a rather high interest rate, but it will greatly depend on the amount borrowed. The lower the amount, the higher the interest rate and vice versa – the higher the amount, the lower the interest rate. For example, loans below 500 USD might have a spiking 30% interest rate, the ones above 1000 USD would range between 8.5% and 12%. These are average numbers and can vary based on the credit institution.
  2. Timeline. Salary loans usually need to be repaid within a year but there are credit facilities that would extend the timeline till up to 3 years. This usually happens for loans above 1000 USD. That said, the longer the period, the higher the interest rate.

Digitalization of Loan

It’s also worth mentioning that with the digitalization of the world it has never been easier to apply for a salary loan. You don’t always even need to go to the bank to get a loan. Many credit facilities created online platforms where all you need to do is to fill in the online form and the money is transferred to your account. Cool, right? However, pay attention to the small print as not having a financial adviser whom you could ask questions might mean you miss important information that could make or break the deal for you.

Another important consideration to make is that you should always do your research and look for a safe financial institution to apply for a payday loan. Concentrate on institutions that have been on the market for a long time, have accreditation or are a member of CFSA (Community Financial Services of America). There are Safe and Sound rating systems that employ several tests measuring the capital adequacy, asset quality and profitability of each rated financial institution. Individual performance levels can be always determined from publicly available regulatory filings and are compared to key absolute benchmarks and industry standards: combined results form the basis of ratings. These can be easily found online via financial institutions comparison sites.

Repayment plan

Before taking up a loan, make sure you can actually pay it back. Creating monthly or even weekly financial goals will help you stay on track. To take off some of the stress, see if you can make some extra cash on the side. Organize a garage sale or check with your neighbors if they need help mowing their lawn or running errands to help you supplement your regular income. Get creative and have some fun on the way!

Bottom line

There’s nothing wrong in taking a payday loan should you have an out of ordinary need, like home repairs or your child’s school trip to Paris, or if you just want to pamper yourself with time away or a shopping spree. Remember to research well, find a reputable credit facility and make sure you have a solid repayment plan. Good luck!

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