Here you will find all the information related to payday loans, such as interest rates, when to use them, and when not to.
There are different types of loans that we can apply for; each one of them covers a particular purpose depending on our current situation.
Oxford Funding serves as a specialized lender when it comes to installment loans. Still, your needs are what is going to determine the type of loan you are going to request.
For instance, if you want to buy a house, you apply for a mortgage. If you’re going to finance a new car, you go for an auto loan, and so on.
Today, we will talk about payday loans. Maybe you already know what they are, maybe not. If you are looking for payday loans online, no credit check, and instant approval, then you have arrived at the right place.
What are payday loans?
First things first, what is a payday loan?
Basically, a payday loan is nothing but a short-term loan that grants you immediate cash.
Naturally, you will need to pay back the money with interest, but this time, you will do it in your next paycheck, hence the name, “payday” loans.
In payday loans, payments are usually due within two weeks or even less. It all depends on your next payday.
Nonetheless, there’s something extremely important that you need to know if you are looking for a direct lender: these loans have a high cost. They usually charge triple-digit annual percentage rates.
So, how do they work?
How do payday loans work?
We all know some of the most common loan types out there. We understand what mortgages are, we know what personal loans are, and so on.
However, payday loans work differently from the aforementioned types of loans.
Firstly, you can get payday loans online or through a physical financial institution. Some states prohibited that kind of loans, some didn’t, and some vary the interest and fees rates limit according to the law.
After you apply for the loan and get it finally approved, you will receive the cash you need and will be able to use it for whatever purpose you want.
Payday loans come with a finance charge, which is generally based on the total amount you borrowed.
Needless to say, you’ll need to pay back the loan amount within the next two or three weeks (or by your next paycheck, whatever happens first).
Payday loans APRs are typically 400% or more. In the “loans world,” this is one of the highest (if not the higher) interest rates we can find out there.
But these loans are easy to get. Lenders have few requirements for approval. In fact, they usually don’t even run a credit check nor check if the borrower has a steady income to repay the loan.
How much does it cost?
To determine the real costs of payday loans, we must refer to state laws in the place we currently live in.
Normally, fees range from 10 to 30 USD for every 100 USD borrowed. Let’s have a clearer understanding of this with an example:
Imagine you borrow 200 USD for a 14-days payday loan. In this case, your lender is charging you 20 USD for every 200 USD borrowed.
Therefore, you will end up paying 240 USD, a simple 20% interest rate. But you are not paying the loan in 6 months or one year – you are doing it in just two weeks.
Hence, the 20% finance charges equate to an APR of more than 400%. The daily interest cost is 2.85 USD. In that case, if you were to repay the loan in one year, you would end up paying more than 1040 USD.
If you want to compare this rate with other types of loans, we can safely say that credit cards usually have a 12% annual percentage rate.
4 things you should know about payday loans
At this point, it is clear that payday loans are just another alternative when it comes to receiving the money we don’t have.
Nonetheless, it’s fundamental to understand those loans a little bit more before making the final decision of actually getting one.
How much can you borrow with a payday loan?
According to the CFPB, the average payday loan is 350 USD on a two-week term. Still, those can range from 50 USD to 1000 USD. It all depends on the laws of your state.
For instance, in Montana, you can have up to 300 USD while receiving up to 1,000 USD in California.
As a consequence, payday loans are categorized as “small-dollar” loans.
How to repay payday loans
You can repay payday loans with a check on your next payday, online through the lender’s site, using a direct debit from your bank account, or even with another form of credit.
Remember that you will be normally required to repay the loan in a single payment and not by monthly amounts.
Situations to get a payday loan
It’s not a secret to anyone that payday loans involve a lot of risks.
Many people can end up falling into a debt spiral after getting a payday loan. We should always avoid vicious cycles of debt, but we understand this is not possible for everybody.
Payday loans are usually used to solve a really urgent need for money. If you are in an emergency situation, be sure to consider all alternatives first.
Do payday loans affect my credit score?
Payday loans DO NOT help you improve your credit score. As we mentioned before, most lenders don’t run credit checks before granting loans.
Therefore, applying for a loan doesn’t affect your score nor appear on your credit report.
It doesn’t matter if you pay it back on time, it won’t show up unless you fail to pay it on time and the loan becomes delinquent.
If your loan is categorized as a delinquent account, this will undoubtedly affect your history in the credit bureaus.