There are countless reasons why you may need to take out a personal loan.
Maybe your expenses were higher than usual this month. Perhaps you had a personal emergency. Maybe you want to pay down debt faster.
Whatever the reason, you’ve thought about payday loans.
But how do payday loans online work, exactly? And even more importantly, how can you use them responsibly?
While payday loans might have a bit of a bad reputation, the truth is that they do help out countless people in their times of need. Especially if you live paycheck-to-paycheck, you may find that sometimes, the money you need just doesn’t get there in time.
Payday loans can help. However, you need to know the smartest ways to use them.
Read on to learn exactly how to make that happen.
How Do Payday Loans Work?
Before we get into how to be responsible with payday lending, let’s make sure we’re working with the same definition of a payday loan.
As the name implies, payday loans are usually short-term personal loans that will help you to handle sudden expenses that you can’t cover now but will be able to pay for in the near future.
In short, they’re a bit like getting an advance on a paycheck you know you have coming. However, instead of coming from your employer, these loans come from online loans lenders.
Since about 80 percent of American citizens alone live paycheck-to-paycheck, these loans can be a good way to tide people over until their employer sends them a check.
Is a payday lender a bank?
In most cases, no. Some banks may provide short-term lending options that are similar to payday loans. But usually, you’ll work with payday lending companies.
Payday loans no credit check are known for having a quick, simple application process and a high approval rate. Because of this, it’s shockingly easy to become dependent on them.
However, it’s important to remember that payday loans come with one huge caveat – a high-interest rate. Even though in most cases, payday loans don’t come in amounts over $500, a high-interest payment can quickly make you feel like you’re drowning.
Additionally, because you are repaying the loan in a single payment (usually around your payday as the name implies), you’ll need to repay the full amount you borrowed plus all of the fees and interest. This is very different from an installment loan, where you may be repaying over the course of months or years.
You may also be responsible for paying other fees associated with the payday loan. It’s important to take your time when comparing lenders, and ensure that you understand the fee and interest structure they offer.
That said, there are plenty of ways to use payday lending responsibly.
Let’s take a look at how to make that happen now.
Smart Rules for Payday Loans
You’re ready to take out a payday loan to help ends meet between paychecks. However, the last thing that you want is to get trapped in an endless cycle of debt, more borrowing, and high-interest rates.
When you’re ready to borrow, make sure you borrow smart.
Follow these rules to remain in good financial standing while using payday loans.
Borrow Only What You Need
The average American citizen is close to $40,000 in debt.
In some cases, this debt could be from educational expenses, paying for a home, or even financing a car.
But a hard truth is that often, we take on debt because it’s easy. We make the mistake of thinking of it as “free money,” when it’s really anything but. Why does this happen?
Because when you’re presented with a loan opportunity, it’s so tempting to apply for more money than you actually need. The golden rule of payday lending? Never take out more money than you need – and can afford to pay back.
It’s always better to take out less money and find room in your budget elsewhere than to end up in a large amount of debt.
Do everything you can to avoid borrowing up to your limit. Sit down and calculate your expenses, the fees and interest rates, and other financial factors before you make any big decisions.
This will help you to avoid getting into hot water with a payday loan.
Know What You Need the Money For
Another thing you need to take into consideration when you’re applying for a payday loan?
Ask yourself what you’re planning on using the money for, and whether or not it’s something worth going into debt over.
In most cases, this should be pretty self-explanatory. A good payday loan example would be something like using the money to fund medical care or for a sudden car repair.
But you shouldn’t use the money to fund a new wardrobe, go on a luxurious vacation that would be otherwise out of your budget, or treat yourself to a few nice meals out.
Remember that payday loans are far from the only kinds of loans out there. If you need money for a car, to fund your business, or even to pay for a home, look into your other options.
After all, payday loans are for small amounts of cash. In some cases, it just isn’t possible to use the money from a payday loan to make the kind of purchase you’d like to.
If you need to finance larger expenses, we suggest that you sit down with a lender or your bank to look into more effective options.
Never Use Multiple Lenders
As we just mentioned above, payday loans are often for small amounts of money.
As such, many people think that it’s a smart strategy to take out many payday loans from multiple lenders at the same time. This way, they’ll be able to get more money than they would with a single payday loan. Plus, the approval process for a payday loan is easier than for a larger loan.
Sounds like a great idea, right?
We understand that, just like borrowing more than you need, it’s tempting to work with multiple lenders.
However, this isn’t just legally questionable. It’s also an incredibly poor financial decision. Interest rates and fees are high, and paying even one payday loan back will take serious financial planning.
When you’re dealing with more than one?
You’ll likely end up in even more debt than you initially had. That’s not a situation that you ever want to find yourself in.
Applying for a Payday Loan
Now, let’s talk a bit about what you can expect out of the payday loan application process.
As we mentioned before, this will likely be a much easier process than those of other kinds of loans. While you may be able to find payday loans with instant approval and no credit check, you should begin by comparing as many different lending options as possible.
First of all, doing so means you’ll get the best possible interest rate. You’ll also find loans that have low processing fees. But additionally, depending on the lender you work with, you may be able to use your findings as a bargaining chip.
Once you feel like you’ve found a lender you can trust, you’ll need to provide them with some basic information.
You’ll also need to meet certain requirements. You’ll need to prove you are an American citizen, be at least 18 years old, and be able to give the lender an address. Usually, you’ll need to show that you are able to earn at least $1,000 in a single month.
Unlike with other kinds of loans, most payday loans don’t actually require you to go through a credit check. However, you’ll still need to show proof of employment. You’ll also show a lender your identification. You may need to provide them with bank statements.
When in doubt, ask the specific lender you want to work with about their unique application requirements.
In most cases, you should be able to apply for a payday loan online. Depending on the lender, you could be approved in as few as 24 hours.
Interested in Applying for Payday Loans?
We hope that this post has helped you to understand more about whether or not payday loans are a wise choice for you.
Remember that they’re best for those who only need to borrow a small amount of money. They carry a high-interest rate and will need to be paid back very quickly.
Feel like you should consider another kind of loan? Ready to begin the application process for a payday loan as soon as possible?
We’re here to help you make smart and informed decisions when it comes to the lending process. We’ll ensure you get the right kind of loan for you, and even help you to determine the amount you need to borrow.
Our blog also helps you to understand all the different kinds of lending options.
We look forward to helping you get your finances back on track. Here are some other articles that you might find interesting: