Short-term loans are so-called because they are meant to tide borrowers over until their next paycheck arrives. The maximum loan amount is often about a thousand pounds, and the usual loan period is around two to three weeks.
Payday loans are a kind of short-term loan that may be received from both brick-and-mortar financial institutions and online financial institutions. These loans may be utilized to bridge short-term cash flow shortfalls. These loans provide a larger loan amount and a longer payback time (usually between one and 10 years), but at a substantially higher interest rate.
So how exactly do payday loans function?
You may apply for a payday loan in two convenient ways: online or over the phone. After approval, the loan proceeds are sent electronically to the borrower’s bank account, with the repayment schedule set for no more than 31 days from the loan’s funding date. If your loan application is denied, you won’t get any money.
Most service providers will ask you to set up a Continuous Payment Authority (CPA) so that you may pay the bill in one lump sum. This authorizes the lender to take the payment directly from your checking account on the due date.
Your interest rate and late payment fees will skyrocket if the CPA falls through for any reason. Another payday loan might be needed if this happens. The payday loans no credit check from slick cash loan is essential here.
Can you describe the typical interest rate for a payday loan?
You should be aware that the typical APR (annual percentage rate) for a payday loan is close to 1,250%, which means that you will pay back far more in interest than you borrowed if you go this route. Payday lenders are limited to charging a daily interest rate of 0.8% as of 2015, under rules put in place by the Financial Conduct Authority.
The repayment amount for a loan of $100 over 30 days at this rate would be $124. Borrowing $500 during the same time period will result in a payback obligation of $620.
This is a far higher interest rate than you would pay for an unsecured loan, personal loan, or bank overdraft of the same amount. Credit card companies typically charge average annual percentage rates (APRs) of between 17 and 20 percent, although most people who borrow $5,000 on a personal loan pay an APR of less than 8 percent. The fees that apply to you in these situations will be based on how well your credit is established.
The short repayment period and the borrowers’ sometimes fragile financial situations make payday loans a risky proposition. That’s why the rates of interest on these loans are so much higher than for others. This means that most applicants will have both a bad credit history and a low credit score, giving lenders reason to worry that they won’t be able to repay their loan.
What do I need to consider before applying for a payday loan?
The most important thing to consider when considering whether or not to acquire a payday loan is whether or not you will have enough money to repay the loan by its due date. A payday loan is not the ideal choice if you responded “no” to that question or if you are unsure of the answer. Think about if there aren’t cheaper ways to get the cash you need. If you’re looking for an alternative to payday loans, read on.