Online Payday Loans
When unexpected expenses occur, many consumers turn to payday loans to get them through the financial crunch. A payday loan is a short-term loan designed specifically to cover your expenses until your next payday. Typically, the loan term is two weeks, though they may extend up to a month or longer, depending on individual loan conditions.
Online lenders commonly require borrowers to fill out an application form, and may ask that the borrower fax in copies of their information. Payday lenders usually require all borrowers to submit proof of employment or recent paycheck stubs, a current bank statement and/or direct deposit information, and proof that the borrower is as least 18 years of age. Lenders may request additional personal information, including a Social Security number, to verify the information.
Once the loan has been approved, the funds will be deposited directly into the borrower’s bank account. On the borrower’s next payday, the full amount, including incurred interest, is electronically debited. If the account does not have enough funds to cover the charge, a lender may be willing to extend the loan terms; however, the borrower will be responsible for insufficient-funds or refinance fees.
One of the key advantages to payday loans is that most lenders do not run a credit check, which means that no matter what your credit score is, you won’t be denied for a loan. However, it is important to think of a payday loan as an “emergency” loan, and you should only borrow what you need. The repayment rates on payday loans are typically much higher than a regular loan, because the terms are much shorter. Annual interest rates (APR) on payday loans often exceed the total amount of the loan, so it is important to know exactly what fees you’ll be incurring. A typical APR on a payday loan is 650%; equivalent to $25 in interest per $100 borrowed over a two-week term.
Though loans are due on the borrower’s next payday, many lenders will roll or flip the loan for another term, which means the borrower pays only the refinance charge each month. Because interest rates are so high, allowing the balance to flip into another term is risky. Many borrowers find themselves caught in a self-perpetuating cycle of borrowing against their future paychecks.
The benefits to an online loan are two-fold: first, borrowers are easily and quickly able to explore a variety of terms and rates before settling on the loan appropriate for their situation, and furthermore, the funds are almost immediately accessible. However, borrowers should be cautious when submitting extensive personal information online and it is important to verify the legitimacy of the lender. Many brick-and-mortar lenders also offer online transactions, which allows the customer both online and physical ways to contact the lending company. A borrower can locate accredited businesses via the Better Business Bureau’s website (http://us.bbb.org).
No matter how good the loan repayment terms and interest rates are, defaulting on a loan still carries substantial consequences. If a borrower defaults on a payday loan, the entire loan may be called for immediate repayment. The borrower’s credit score is put into jeopardy and their information may be sent to a collections agency. The laws and regulations on payday loans vary by state, and many lenders are given the freedom to determine individual loan interest rates as long as the borrower agrees, so before acquiring an online payday loan, it is important to read and understand all of the lender’s terms.