How Payday Loans Work
Tuesday, November 8, 2011
To understand the way that payday loans can be useful you are going to have to know how it is that work, which is what will be explored in this article. This is going to include the sorts of situations that they can be used in to the best effect, and what the application process is.
Application Process
The application process for payday loans is very simple, much more so than it is for most other forms of loan. That's because there is going to be no credit check and you are not going to be asked about what you are going to use the money for. Instead, just about the only thing that you will be asked about is your employment details.
The reason that you are asked about your employment details is that the payday lender has to know how much you make in a month and when you get paid. That's because you generally have to pay the loan back the next time you are paid, so you have to make enough in a month in order to cover the amount you are asking for, and the interest on top.
So why is it that payday lenders don't perform credit checks? If you're going to understand that, you'll have to know why it is that most lenders do want to know about your credit history. Which is that it's hard to predict what situation you'll be in financially in the future, for the whole length of the loan.
What a regular lender is going to use a credit history for, then, is as a way to be able to predict whether you are likely to repay the loan on time or not. If you've always been able to in the past, they are going to be more confident that you will in the future. Since pay day loans last for such a short amount of time though, trying to predict far in to the future is not necessary.
Why Pay Day Loans Can be Useful
When are payday loans going to be useful then? Well, since it is so easy to get a loan of this sort, and you can get the money quickly, they will be useful any time you need some money fast. There are of course plenty of situations when that will be the situation.
To take just one example, imagine that you don't have the money one month, for whatever reason, to make your rent or mortgage payment. Instead of having to miss a payment, what you can do instead is take out a pay day loan, and in that way avoid the negative consequences that would come about from not making the payment.
The number of situations in which you might be able to make good use of a payday loan are nearly limitless. Something that it is important to keep in mind though is that the payday lender will only want do know whether you can technically afford the loan, it is up to you to make sure that you can realistically as well. If you can't, then just as everything else happens faster with this sort of financing, the interest rates will go up quickly as well.
So long as it is not a problem to repay the loan on time then you will find that the interest charge is entirely reasonable. Some people have the idea that the interest rates on payday finance is extremely high, but usually that is just from paying too much attention to what the APR is, which after all only tells you how much interest you would have to pay in a year.
That, in a nut shell, is the way that pay day loans work then, and why they are so useful in lots of different circumstances. If you are in a minor financial emergency, they are certainly worth considering.
Application Process
The application process for payday loans is very simple, much more so than it is for most other forms of loan. That's because there is going to be no credit check and you are not going to be asked about what you are going to use the money for. Instead, just about the only thing that you will be asked about is your employment details.
The reason that you are asked about your employment details is that the payday lender has to know how much you make in a month and when you get paid. That's because you generally have to pay the loan back the next time you are paid, so you have to make enough in a month in order to cover the amount you are asking for, and the interest on top.
So why is it that payday lenders don't perform credit checks? If you're going to understand that, you'll have to know why it is that most lenders do want to know about your credit history. Which is that it's hard to predict what situation you'll be in financially in the future, for the whole length of the loan.
What a regular lender is going to use a credit history for, then, is as a way to be able to predict whether you are likely to repay the loan on time or not. If you've always been able to in the past, they are going to be more confident that you will in the future. Since pay day loans last for such a short amount of time though, trying to predict far in to the future is not necessary.
Why Pay Day Loans Can be Useful
When are payday loans going to be useful then? Well, since it is so easy to get a loan of this sort, and you can get the money quickly, they will be useful any time you need some money fast. There are of course plenty of situations when that will be the situation.
To take just one example, imagine that you don't have the money one month, for whatever reason, to make your rent or mortgage payment. Instead of having to miss a payment, what you can do instead is take out a pay day loan, and in that way avoid the negative consequences that would come about from not making the payment.
The number of situations in which you might be able to make good use of a payday loan are nearly limitless. Something that it is important to keep in mind though is that the payday lender will only want do know whether you can technically afford the loan, it is up to you to make sure that you can realistically as well. If you can't, then just as everything else happens faster with this sort of financing, the interest rates will go up quickly as well.
So long as it is not a problem to repay the loan on time then you will find that the interest charge is entirely reasonable. Some people have the idea that the interest rates on payday finance is extremely high, but usually that is just from paying too much attention to what the APR is, which after all only tells you how much interest you would have to pay in a year.
That, in a nut shell, is the way that pay day loans work then, and why they are so useful in lots of different circumstances. If you are in a minor financial emergency, they are certainly worth considering.
About the Author:
If you happen to be payday finance or perhaps you just want to find out a bit more about it, visit Payday loans where author Jackson Edwards also writes on occasion.
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