5 Things to Consider Before Submitting a Form for a Payday Loan
Most salaried people that live paycheck to paycheck face financial crises often. This happens because when unexpected financial needs crop up, it topples their budget.
Around 12 million Americans take out payday loans each year. According to the Pew Charitable Trust, most borrowers don’t have access to a savings or credit card account.
While taking out a payday loan is incredibly tempting as it puts the much-needed cash right into your hands when an emergency occurs, many struggle to repay it. In fact, according to the Better Business Bureau report, many payday loan borrowers have filed complaints citing that the experience wasn’t what they expected. And, in some instances, it left them worse off.
While taking payday loans requires few formalities, and you can access the cash within seconds even if you have bad credit, there are certain things to consider before you procure one.
1. Qualifications and State Requirements
Payday loan borrowers must meet certain requirements to qualify for a loan, according to the governments’ Consumer Financial Protection Bureau (CFPB). These include:
- Be of legal age, which should exceed 18 years old.
- Possess an active checking account.
- Provide proof of income. You must prove that you can repay the loan or are gainfully employed, such as by providing a pay stub.
- Provide valid identification like your ID or Driver’s License.
In addition to the loan qualification documents, you also need to understand your state’s requirements before applying for a payday loan. Some payday loan state requirements include:
- The maximum amount you can borrow if you’re in a specific state.
- The APR and finance charges that each state and the lender apply to the loan.
- The maximum loan term.
- Some states allow rollover, but most don’t.
2. Loan Amount
A payday loan is a small-dollar short-term loan. It is meant to help you sort a financial emergency before and to be paid with your next paycheck. The payday loan amount can range between $50 and $1000.
The amount you qualify for depends on several factors, including:
- Your income – The amount of money you make per month determines the loan amount you can procure from a payday lender.
- State maximum amount – Different states have varying maximum loan amounts.
- The payday lender – Some lenders can offer to give you a higher amount than others.
- Ability to get simultaneous payday loans – Some states allow you to get multiple payday loans from different lenders simultaneously, though at extremely high interest rates.
3. Cost of the Loan
If you’re thinking of taking out a payday loan, you should never ignore checking the APR, finance charges, and other costs of the loan before you sign the dotted line. While payday loans are the most convenient type of loan, they are the most expensive.
Some states have created regulations on the maximum APR and finance charges that lenders of payday loans must adhere to, but some haven’t. For example, APRs in some states are as low as 28%, but in others, the rate can go up to 1000%. These high amounts are usually from unscrupulous lenders that take advantage of the fact that APRs aren’t regulated in their states. So, be careful when taking any payday loan to ensure you don’t fall into the hands of predatory lenders.
Luckily, AdvanceSOS has done the due diligence on your behalf and connects you with legit lenders in different states. All you need is to submit a form for a payday loan on our website and wait for the lender to get back to you.
4. The Terms and Conditions
When you get a lender willing to advance the loan, it’s vital to understand the fine print before you sign the contract. This is even more crucial if you’re dealing with an online lender.
Read page by page to understand fully what every single word means. Also, try reading between the lines to understand every financial clause.
If you’re unable to comprehend certain things, seek advice and guidance from a financial expert. Most websites provide helpful resources that can help you understand payday loans and the implications of the financial information in the contract better.
If you come across some information you’re not comfortable with, quit the process. You’re never under any obligation to accept any loan you’re offered. So, before you put down that signature, understand what you’re getting into.
5. The Risks Involved
The final step is to make sure you understand the risks of the loan. If you aren’t aware of the overall risk of taking out a payday loan, seek advice from financial advisors. You don’t want to proceed blindly and end up with even more financial difficulties than you had before.
While this is the best kind of loan for people with bad credit, most borrowers found themselves in even worse financial trouble when they could not repay the loan.
If you don’t pay the loan on time, the lender can charge you a default fee depending on the terms and conditions, so be sure that you can meet all your repayments without delay or failure.
However, if you take the loan and fall behind in repaying it, you can talk to your lender. They may understand your situation and offer an extension.
Take note of the fact that each time you extend the loan, more fees are tacked onto your loan. According to the CFPB, payday lenders charge a fee that ranges between $10 to $30 for every $100 borrowed. A $15 fee ends up being 400% annually.
And, if you miss a repayment another time, your lender may decide to put you on a list of those who have defaulted permanently on their loan. That could affect your credit rating in the long run, making it harder for you to take out any more loans.
Overall, the most important thing is to understand the risks before you take the loan.
Amanda is a senior financial copywriter at AdvanceSOS. She has more than six years of journalism experience, mostly in finance. She graduated with a Master’s degree in finance from the University of Oklahoma.