A
cash crunch is always a challenge. Unexpected expenses can blow a hole in your
budget, and you may find yourself without many options if you need cash fast to
pay for things like car or home repairs. One solution is a payday loan.
However, it isn’t as simple as just signing up, and you don’t want to make a
mistake when searching for payday lenders for a loan. Here are 5 things you
should know before you get a payday loan.
Payday Loans Have a Variety of
Names
Payday
loans get their name from the fact that they are secured by your income or
paycheque. In fact, you used to have to sign over your paycheque or pay on
payday to pay off the loan. The payday lender might demand a post-dated cheque
for the loan amount plus interest that would be deposited the same day. This is
why they were called post-dated cheque loans. Today, lenders will sweep your
bank account on the day your paycheque should deposit. This has led payday
loans to be called cash advance loans as they’re a cash advance on your next
paycheque.
The Interest Rate Can be High
One
point in favour of payday loans is that they are independent of your credit
score. Your loan is secured by your paycheque, and the amount they loan will be
based on how much you earn. However, they offer these loans to many people who
have borderline creditworthiness, and that results in a relatively high default
rate compared to other options, which is why interest is usually a bit higher.
So make sure that you aware of how much interest you’ll have to pay, and avoid being
late at all costs.
You Can Apply Online
Many
new payday loan lenders allow you to apply
online and get money deposited into your bank account within hours or even
minutes. However, you need to research the payday lender before you sign up and
also make sure that you clearly understand the loan’s term to make sure you can
get an extension for instance.
Understand the Rules About CPA
Legitimate
lenders will request continuous payment authority or CPA to debit
your account for the loan payment. You can cancel the CPA at any time. However,
you will still owe whatever amount remains outstanding. Furthermore, if this
causes you to miss a payment, you could be hit with even more fees.
Look at Your Options
Payday
loans are the shortest term loan most of these lenders offer, but it isn’t the
only option. Short term loans are another. One point in favour of short term
loans is that you can borrow more than you can with a payday loan. The other
benefit is that the loan payments are stretched out over several weeks or
months, so the payments are lower. Many payday loan providers also offer short
term loans, so make sure that you explore that option as well and see if you
would be eligible.
Payday loans are available to
those with few other options. However, you need to understand the issues
involved so that you choose the right loan for your situation.