Payday loans are short-term loans which are usually got from a local business like a loan store and not from a bank. These loans are typically borrowed to get through until your next payday. Payday loans are marketed to people who struggle to make it to the end of the month. If you have started to get these payday loans, you tend to get them every month, and it becomes a habit. These loans usually have a higher interest rate and people fail to pay back the money and end up in a lot of debts.
Requirements to get a payday loan:
To get this loan, you will need identification, a bank account and a continuous source of income. The people who lend money don’t expect the borrowers to pay them back; they are only involved in collecting the interests and do not care about the borrower’s ability to repay them.
Legal Status of payday loans:
These high-cost payday loans are authorized by state laws and the regulations in the thirty-two states. The District of Columbia and fifteen states try to protect the innocent borrowers from high-cost loans and provide them with reasonable small loan rates. Some loaners provide money online, and they are usually subjected state licensing laws.
The loan process:
The vendor provides an unsecured amount which is usually for a short-term, and the borrowers are offered with the money if they have some source of income and bank identification. But it is known that most vendors these days do not check for any license and do not verify incomes or run credit checks. The borrower needs to write a postdated check to the lender which includes the loan amount and the fees that need to be paid.
If the amount is not paid on the specified date, the lender can redeem the check, and if there are short of funds in the account, then the borrower has to face a bounced check fee from their banks. The interest rates keep increasing, and the borrower gets stuck in a pool of debts, and they tend to borrow more money to repay the existing debts and get stuck in a circle from which they will not be able to get out.
Alternatives to Payday loans:
Instead of getting trapped in a cycle of loans where you keep borrowing money to pay the lenders constantly, the following steps can be taken to come out of that circle:
- If you know any friends or family members who can give money to you for a short while, you can get it from them and escape from paying huge interests.
- Get advance cash from your credit cards as the rates that are charged on a payday loan are 35 times more than what they charge on credit card loans.
- Get a payday advance from your employer.
- Consider having proper financial planning to manage your finances.