How Do Payday Loans Work?

Anyone who watches television or listens to the radio on a semi-regular basis has probably seen or heard more than a couple ads for payday loans. The payday loan concept has been growing in popularity for some time, as more and more people take advantage of this form of borrowing.

Payday loans have both good points and bad points, so keep reading to learn exactly what they are and how the process works.

What Is a Payday Loan?

A payday loan is a short term loan, where you essentially borrow money against your upcoming pay cheque. The amount of a payday loan is generally only a few hundred dollars, and it is not designed for any long term financial solutions.

Many storefront payday loan places can be found in most cities, and you can also access payday loans online.

Why Would I Want One?

The reason that most people look into payday loans online is to bridge the financial gap between right now and the next payday. Little financial ‘emergencies’ happen to everyone in life, and if you find yourself short of funds a payday loan can help you out.

So, basically a payday loan is there to help with any short term financial problems you might encounter between pay cheques.

Payday Loan Qualifications

Since a payday loan online or through an offline office is still a loan, there are qualifications that must be met. The exact details may vary depending on the lender, but some common qualifications include:

Active bank account Permanent address Steady job with proof of pay

What About Credit?

With a short term loan such as a payday loan, credit is still an issue but not as big of an issue as with a larger, long term loan. Some places will do credit checks and some won’t, but for the most part it is the pay cheque and the way it is set up that secures your loan.

With payday loans online and physical storefronts, you will be paying back your loan amount right from your account, so proof of employment, income amount and your bank account number is often enough.

Terms and ConditionsAs with all contracts, it is important to read over your payday loan agreement carefully. Some of the terms and conditions should include:

Loan amount and when it must be repaid Up-front fees and charges Service fees and charges Options for repayment Interest rate Fees and charges for early or late repayment

Steps to Take

When you are looking to get payday loans online, there are a series of steps you must take in order to get your money. Generally, you’ll have to:

Select the amount you want to borrow Select the loan term Complete the application Confirm who you are Accept the terms of the loan Wait for your money to be deposited

Pros and Cons

There are pros and cons involved with getting payday loans online.

Pros:

Helps you solve a short term financial problem Fast and easy process Convenient Don’t have to put up any real collateral

Pros and Cons cont…

Cons:

Typically much higher interest rate than a standard loan Can result in abuse, where people try to use them for long term financial issues May include hidden fees and costs that inflate your borrowing rate

References

https://www.zaplo.ca/howtoZaplo

http://www.cbc.ca/news/background/personalfinance/payday-loans.htmlCBC News