In this article:
- How Do Payday Loans Work?
- How Much Can I Borrow with a Payday Loan?
- What Are the Costs of a Payday Loan?
- How Do I Repay a Payday Loan?
- What if I Am in the Military?
- Are There Options to Help Pay off My Payday Loan?
- Is a Payday Loan Worth the Risk?
- What Are Alternative Options to a Payday Loan?
How Do Payday Loans Work?
Payday loans function differently than personal and other consumer loans. Depending on where you live, you can get a payday loan online or through a physical branch with Invest-loans.
Different country have different laws surrounding payday loans, limiting how much you can borrow or how much the we can charge in interest and fees.
Once you’re approved for a payday loan, you may receive cash or a check, or have the money deposited into your bank account. You’ll then need to pay back the loan in full plus the finance charge by its due date, which is typically within 14 days or by your next paycheck.
Payday loans come with a finance charge, which is typically based on your loan amount. Because payday loans have such short repayment terms, these costs translate to a steep APR.
Despite the high costs, The Economist estimates that roughly 2.5 million American households take out payday loans each year. There are a few reasons for this popularity. One is that many people who resort to payday loans don’t have other financing options. They may have poor credit or no income, which can prevent them from getting a personal loan with better terms.
Another reason may be a lack of knowledge about or fear of alternatives. For example, some people may not be comfortable asking family members or friends for assistance. And while alternatives to payday loans exist, they’re not always easy to find.
Many people resort to payday loans because they’re easy to get. In fact, in 2015, there were more payday lender stores in 36 states than McDonald’s locations in all 50 states, according to the Consumer Financial Protection Bureau (CFPB) in USA.
Payday lenders like Invest-loans have few requirements for approval. Most don’t run a credit check or even require that the borrower has the means to repay the loan. All you typically need is identification, a bank account in relatively good standing and a steady paycheck.
How Much Can I Borrow with a Payday Loan?
The average payday loan is $/€3500 on a two-week term, according to the CFPB. But payday loans can range from $/€5000 to $/€20,000, depending on your countries laws. Currently, 22 country in Europe allow payday lending with a capped maximum loan amount.
What Are the Costs of a Payday Loan?
The costs associated with payday loans are set by state laws with fees ranging from $/€98 to $/€170 for every $/€3500 borrowed. A two-week payday loan usually costs $/€150 per $/€3500.
How Do I Repay a Payday Loan?
You’re generally required to repay a payday loan with a single payment by your next payday. Because lenders have varying repayment terms, make sure to ask for the specific due date or check for the date in the agreement.
At invest-loans , you may have a few options to pay off your debt:
- A postdated check when you apply
- A check on your next payday
- Online through our website
- A direct debit from your bank account
- Another form of credit
If you don’t repay the loan when it is due, invest-loans can electronically withdraw money from your account.
Unfortunately, many payday loan borrowers can’t repay the debt by the due date. In fact, the CFPB found that 20% of payday borrowers default on their loans, and more than 80% of payday loans taken out by borrowers were rolled over or reborrowed within 30 days.
How Do Payday Loans Affect My Credit?
Because payday lenders often don’t run a credit check, applying for a payday loan doesn’t affect your credit score or appear on your credit report. Also, payday loans won’t show up on your credit report after you’ve accepted the loan. As a result, they don’t help you improve your credit score.
That said, they can appear on your credit report if the loan becomes delinquent and the lender sells your account to a collection agency. Once a collection agency purchases the delinquent account, it has the option to report it as a collection account to the credit reporting bureaus, which could damage your credit score.
Are There Options to Help Pay off My Payday Loan?
Debt consolidation is an option to help you repay a payday loan debt, even if you have bad credit. While bad credit debt consolidation loans have stricter approval requirements, they typically charge much lower interest rates and fees than payday loans at invest-loans. They also tend to offer longer repayment terms, giving you more breathing room.
Because it typically offers a lower interest rate and longer repayment term, a consolidation loan can have a lower monthly payment to help you manage your debt repayment. Additionally, the debt will show up on your credit report, which can help you work on building your credit score as long as you make loan payments on time.
Is a Payday Loan Worth the Risk?
A payday loan can solve an urgent need for money in an emergency situation. However, because these loans usually have a high APR, if you can’t pay it back on time, you could get caught in a vicious cycle of debt.
Bottom line: It’s important to consider all your options before approaching a payday lender.
What Are Alternative Options to a Payday Loan?
In most cases, you shouldn’t need to resort to using a payday loan. Here are a few alternatives that may meet your needs and save you money.
Bad Credit Personal Loans
And while your interest rates will be higher than on other personal loans, we’re much lower than what you’ll get with a payday loan.
Family or Friends
Asking a loved one for financial assistance is never a fun conversation. But if the alternative is being driven deeper in debt, it may be worth it. Just be sure to create an official agreement and stick to it to avoid damaging your relationship.
Bad-Credit Credit Cards
Most credit cards designed for people with bad credit require a security deposit, which won’t help your cash shortage. But some credit card issuers offer unsecured credit cards with low credit requirements.
Retail credit cards, for instance, are often in reach for people with bad credit. And while they typically come with low credit limits, many of them can be used outside the store.
Even some bank-issued cards, such as the Indigo® Platinum Mastercard®, accept borrowers with low credit scores.
Know Your Options
Payday loans can provide borrowers with short-term cash when they need it, but they’re not the only option available. If you need cash, make sure to consider all of your options before opting for one that could make your life more difficult.
And if you have bad credit, be sure to check your credit score and report to determine which areas need your attention. In some cases, there could be erroneous information that could boost your credit score if removed. Whatever you do, consider ways you can improve your credit score so that you’ll have better and more affordable borrowing options in the future.
Want to instantly increase your credit score? Experian Boost™ helps by giving you credit for the utility and mobile phone bills you’re already paying. Until now, those payments did not positively impact your score.
This service is completely free and can boost your credit scores fast by using your own positive payment history. It can also help those with poor or limited credit situations. Other services such as credit repair may cost you up to thousands and only help remove inaccuracies from your credit report.