When you need cash quickly, you may consider payday loans as a source of short-term financing. Payday loans are easy to get and don’t require any sort of credit check, making them more accessible than a personal loan or even a credit card cash advance. But, are they really a good idea?
How Payday Loans Work
A payday loan is essentially an advance against your next paycheck. You give the payday lender your pay stub as proof of income and tell them how much you want to borrow.
They give you a loan for that amount, which you’re expected to repay when you receive your paycheck.
The repayment period is based on how frequently you get paid, i.e. weekly, biweekly or monthly. In addition to proof of employment and a pay stub, you’ll also need a bank statement or your bank account information to apply. Payday loans are typically deposited right into your bank account once you’re approved.
Depending on how the payday lender processes loans, you may have to write a post-dated check for the amount of the loan, plus any fees. Some states require the check to be dated for the day the borrower receives the money. In this case, you may have to sign a contract stating the check will be held by the lender until the agreed date of repayment.
On the date the loan comes due, you’re obligated to repay the loan, plus any fees the payday lender charges. If you can’t repay the loan in full, you could ask the payday lender to extend, which usually means paying another fee.
If you default on a payday loan, the potential consequences are similar to defaulting on a credit card or another unsecured debt. Failure to repay can result in the lender threatening criminal prosecution or check fraud.
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