At one point in time or another, we’ve all found ourselves in a tight financial spot. Most of us are able to turn to family and friends for help, but what if they can’t or aren’t willing to help? What if you need to source external funds?
One viable option in such a situation is a direct payday loan. In this article, you’ll learn all about direct payday loans and how they can help you when facing financial difficulties.
What Is A Direct Payday Loan?
A direct payday loan is an efficient short-term loan that allows you to access quick cash on demand to cover immediate financial needs. It acts as a cash advance on your next paycheck; hence the name.
Typically, you’ll have to pay off the loan on your next payday. That said, some lenders offer flexible repayment options. Such repayment plans give you the freedom to pay off the loan in two or three equal installments without any hike in the interest rate.
A payday loan is typically used for a small, short-term financial emergencies. For instance, let’s say you have no savings and a poor credit rating, and your car breaks down. The car repair shop is asking hundreds of dollars to get your vehicle back up and running. Since you need your car to commute to work and aren’t likely to qualify for a traditional loan on account of your credit, a payday loan may save the day for you.
Remember, payday loans are not designed to cover big expenses, like financing a house or car. The amount of loan you’re eligible for largely depends on your current salary. Payday loans also tend to have higher interest rates than traditional loans, as they pose more risk to the lenders.
What Are The Benefits of Payday Loans?
Here are some of the main benefits of payday loans:
- Easy Application
Did you know that applications for this type of loan usually don’t take more than 30 minutes? What’s more, the application process isn’t too complicated, nor does it require a lot of paperwork.
If you apply for a payday loan online, the process is even simpler and faster. Also, you can submit an online application at any time of the day, and don’t have to wait until your local bank opens to get the funds.
- Instant Money
This is perhaps the biggest benefit of payday loans: not having to wait to get the funds. If you’re applying for a loan in person, you can expect the money to be credited into your bank account within 24 hours. And if you’re applying online, you may receive the funds within 15-20 minutes.
On the other hand, conventional loans and credit cards can take a lot of time to process. You may have to wait anywhere between a few days to a few weeks to get an approval. When you’re up against a financial emergency, you simply can’t afford to wait so long.
- More Convenience
As you can apply for a payday loan online, you can submit an application from anywhere. That, however, is not the case with traditional loans. For these, you need to book an appointment with a loan officer and may only get an approval after several in-person meetings.
One big advantage a payday loan has over a credit card is that you can get money in cash. As such, you’re free to spend the funds in any way you deem necessary, from paying back a friend to paying an overdue bill.
- Fewer Requirements
Traditional loans may require collateral, like cars or property. In addition, conventional lenders will check your credit score. If your credit report is below par, your loan application is likely to get rejected.
In comparison, payday lenders don’t ask for collateral, nor do they base their decision on your credit history. While direct lenders may check your credit score, they tend to base their decision on the size of your paycheck.
A consistent, verifiable income is proof enough for most direct lenders that you can repay the loan on time. Besides proof of income, other common requirements for accessing a payday loan include:
- Registration as a permanent resident in your state or province
- An active bank account
- Above 18 or 19 years of age, depending on your location
- Protects Your Credit Rating
A payday loan doesn’t show up on your credit report. This can be an advantage if your credit score is already poor but you’re trying your best to improve it and budget your money.
Just like other loans, you’re under a legal obligation to pay the borrowed sum to the lender by the agreed date. If you’re not able to fulfill these obligations, you’ll incur financial penalties, but your credit score won’t take a hit.
That, however, is not the case with a conventional loan. If you can’t pay a bank loan on time, your credit rating is likely to plummet.
Some, but not all, online payday lenders offer customers handsome cashbacks when they repay their payday loan by or before the agreed date. In short, you get rewarded for something you need to do—pay off your loan on time.
How To Get a Payday Loan
Sometimes you may find yourself in a tight spot even after doing your best to budget effectively. When funds are tight and you’re need of short-term cash, a payday loan is one option worth considering.
Which brings us to an important question: How do I get a payday loan?
Obtaining a payday loan is relatively easy. Whether you’re applying online or in person at a brick-and-mortar storefront lender, you should get the funds the same day—sometimes within a couple of hours, if not quicker.
Here’s what you need to do to get a payday loan.
- Decide Whether You Want To Apply Online Or Offline
Applying for a payday loan online is easier and more convenient. You can apply for a loan anytime and from anywhere. Plus, the funds get transferred into your account much quicker than if you were to apply in person.
- Search For A Reputable Direct lender
You should always borrow money from a licensed payday lender with a good reputation. Perhaps your friends or co-workers can recommend a name to you, but if not, you can search for a lender online. Make sure you check the lender’s reviews on independent online platforms.
The last thing you’d want when you’re already in a tight financial spot is a lender with countless complaints lodged against them.
- Check The Interest Rates And Fees
Compared to conventional loans, payday loans have significantly higher interest rates. On top of that, payday lenders may tack on fees for a number of reasons. For instance, some lenders may charge you a fee to withdraw money from your bank account or to apply for a loan. Shopping around can help you get the best deal, so don’t forget to do so before submitting an application.
- Decide Which Payday Loan You Need
There are different types of payday loans, and each may have different fees and rates. Speak to your lender about various options and their terms and conditions to find out which one will work best for you.
Some of the more common payday loans are:
- Regular Payday Loans – Suitable for individuals who need quick cash to meet an unexpected financial emergency. In most cases, you can get up to $1500 as a loan.
- Weekend Payday Loans – These are typically small loans of about $100–$200 that you can get on Saturdays and Sundays.
- Same Day Payday Loans – Do you need some extra cash the same day? Then this loan may be right for you.
- E-transfer Payday Loans – This loan type is fast; in most cases, you’ll get the funds via money transfer within minutes.
- Check Payment Options
As mentioned earlier, while most lenders require you pay the full amount on your next payday, some offer flexible repayment options. Decide whether you need these flexible terms or whether you’ll be able to pay the loan back in full. Before you opt for a flexible repayment option, make sure your interest rate remains the same as the single repayment plan, and if not, determine whether a higher rate will affect your ability to repay.
- Complete The Loan Application
Last but not least, fill out the application and submit it, along with whatever documents the lender requires. Although every lender has their own application process, typically they’ll ask borrowers to provide the following information:
- Information about their employer
- Annual salary and a salary slip for the last three months
- Bank account details
- Date of birth
- Address and phone number
How Much Can I Borrow With A Payday Loan?
Two things govern your borrowing capacity:
- Your annual salary
- Your state or province’s laws
Typically, most lenders will allow you to borrow up to $1500 with a payday loan.
A payday loan is a small, short-term loan that you’ll typically need to repay with your next paycheck. It can come in handy when money is tight and you find yourself facing an unexpected or sudden financial emergency. Interest rates and fees vary from one provider to next, so do your research and shop around to get a good deal.