Payday is everyone’s favorite day of the week, month, or whatever schedule you’re on! Payday loans on the other hand are a hot button topic that many view as a way to fall into a debt trap. Payday loans are short-term, high-interest loans that are typically used to cover unexpected expenses. They are often marketed as a quick and easy way to get cash, but there are some important things to know about payday loans before you take one out.
How exactly do they work?
Payday loans are unsecured personal loans, which means they do not require any collateral from the borrower. Because of that, they have extremely high interest rates and can have hidden fees as well. Payday lenders usually require you to show proof of your income, like a previous paystub from your current employer. They often do not conduct a full credit check to assess your ability to repay the loan.
Payday loans do not typically help you build your credit history. However, if you default on a payday loan, it will be reported to the credit bureaus and your credit score will be negatively affected.
One interesting thing about payday loans is that not all lenders require a bank account to lend you money. For some lenders, a prepaid card account may be enough to qualify for a payday loan.
Things to consider before taking out a payday loan.
Payday loans can be obtained quickly and easily, often with just a few pieces of identification. This is a huge advantage compared to personal loans that require full credit checks and an extensive approval process before accessing funds. That said, payday loans have very short repayment terms, which can make it difficult to repay the loan if you have unexpected expenses.
Payday loans typically only offer small amounts of money, which can be helpful if you need to cover a small unexpected expense. But they also have high interest rates which makes them very expensive to borrow.
Before taking out a payday loan, understand the associated fees, exactly how much you need to borrow, and what other options might make more sense for you to solve a short-term cash crunch.
Download the Peach app to see your current debt obligations, your spending patterns, and figure out how you might be able to save up for a rainy day fund as an alternative to payday loans.
Peach out ✌️