Understanding Payday Loans Payday loans are often regarded as notorious loans, which put the borrowers in a cycle of borrowing. This is not true! The following lowdown on payday loans will help you understand the nature of these loans, as well as help you understand the situations when nothing other than payday loan can fulfil your financial need.
The Core Concept of a Payday Loan?
The concept of a payday loan is to fulfil a financial emergency and return the loan amount on your salary day. The lenders have maintained high interest on payday loans. It is because payday loans are available for everyone, irrespective of their credit reports. It is ideal to save for the rainy day from your regular income however, it is safe to borrow payday loan if you believe that you can return it.
Many people borrow payday loans to pay their bills or return other loans, which is unjustifiable. It is never safe for your financial management to borrow a loan for repaying another loan. It is a clear sign that you are not saving from your income. Ideally, a person should save 30% from their income every month. If you are not doing so, then you need to learn about different ways of altering your lifestyle, frugal living, and techniques of saving more money.
How Does a Payday Loan Work?
The banks do not provide payday loans. However, payday loans are legal loans that private lenders offer. The private lenders have physical offices or virtual businesses for payday lending. In physical offices, the borrowers can obtain the required amount by filling the form and giving the lender a post-dated check. The amount in check is 100% of the borrowed money with an additional 25% of the loan amount as interest. The high interest rate works as a security in payday loans. However, if you have other securities like a good credit report then you may negotiate with the lender to reduce the interest on your loan amount.
In virtual businesses, the borrower fills the online form and automates the payment on their salary day. They have to provide a proof of automated repayment in the lender’s account to generate loan. The lender will confirm the automated repayment and give loan to the borrower within 24 hours, mostly.
The government may introduce new rules for payday loans. Make sure to stay updated about the new rules before borrowing a payday loan.
When You Should Use a Payday Loan?
You should take a payday loan:
- When you have a financial emergency and other options like peer-to-peer lending and guarantor loan are not available
- When you need extra cash to fulfil the amount required for a financial emergency (loan + your savings)
- When you need fast cash
- When you have bad credit report and you badly need a loan
A payday loan is not a good option for people who are unable to manage their finances. You should always save money for an emergency fund. Remember that a loan is a loan. You can avoid paying interest on loan simply by saving money for the rainy day.Read More