How Do Online Payday Loans Work

The online marketplace for loans is progressing at a slow speed. The internet gives us a wide variety of options to choose the best deal. If you cannot access traditional ways of receiving a loan,consider the online payday loans. A payday loan is a short-term loan that needs to be paid from your next paycheck. The due date of loan repayment is your next pay date, that is where the name‘payday loan’ comes from. You can take out a small amount as a loan to meet your immediate requirements. These loans usually carry high rate of interest for the convenience of speed they provide. You can secure a payday loan even if you have a bad credit score.

How do Online Payday Loans Work?

A payday loan works very differently than a traditional loan. Most online payday lenders only ask for your identity, bank account, and a regular paycheck. Once they verify that you have a regular monthly income received on a particular day, they will transfer loan funds to your bank account.The process takes only a day or two to finish and is the fastest way to get a loan.To secure their money, payday lenders get approval from you to automatically withdraw funds from your account on your next payday. A fixed amount is charged as interest which is also debited from your paycheck. You may also be given an option to write a check to your lender that will cash on a specified date as per your arrangement.

How do you Apply for an Online Payday Loan?

You can easily apply for a payday loan from the comfort of your home. Do not forget to check out the legal requirements in your state. Some states ban these loans altogether. Look for the best options available online and fill out the form asking for your basic information. You will either receive an instant call from the payday lender or taken to the next web page to fill out your requirements. Your loan will be passed quickly if you have a bank account and a constant monthly income.

How Much can you Borrow Through a Payday Loan?

The rules for payday loans vary from state to state. Depending on your state, you can get a loan with an upper limit of $300 to $1000. That does not mean you will get the highest amount that is allowed in your state. The online payday lender will assess your income level, monthly expenditure, and previous payday dealings to determine the amount of loan.

How Much Does a Payday Loan Cost you?

As a payday loan gives you money instantly for your convenience, they charge exorbitantly for the service and comfort they provide. As per the Consumer Financial Protection Bureau, the median online payday loan costs around $23.53 for a $100 loan. That amounts to 613% Annual Percentage Rate as against 20% in the case of traditional loans.

Despite the high costs, it has been estimated by The Economist that 2.5 million American households take out payday loans every year. There are many reasons for them to pay higher costs.Poor credit score, lack of knowledge of other available alternatives, and quick procedure of payday loans are the major factors that contribute to their success.

What Happens if you Cannot Repay a Payday Loan?

Depending on your state laws, you can ask your lender for rolling over the loan to your next payday. Some states might not allow this, so check for yours in advance. Your payday lender will either renew your existing loan or renew it to a new one. This will add up to your costs in the form of interest, so beware of getting trapped in the cycle of debt.

If however, your state does not allow rolling over of loan or your lender doesn’t agree to do so,you might get into trouble. Your payday lender will continue with his attempts to withdraw money from your bank account and with each failed attempt, you will incur bank charges. The lender will also get in touch with you and your references to recover the loan amount. You might receive legal notice from your lender’s lawyer.

If you can convince your payday lender, he might negotiate a settlement with you to recover his partial amount. In case you are unreachable, your payday lender might outsource your loan to a debt collector. Once a loan reaches the debt collector, a lawsuit will be filed against you for non-payment of your dues. In case a judgment against you is passed by the court, it will remain public for the next seven years and both your assets and income will be controlled legally.

Benefits of Online Payday Loans

Instant money The biggest advantage of an online payday loan is the instant money you receive.In an emergency, you cannot wait for two weeks for getting a traditional loan approved. In the case of online payday loan, you can expect to receive funds in your account in 24 hours.
Easy approval If you have faced rejection from your bank due to poor credit score, you can still try for an online payday loan. Such companies do not check your bank transactions and, therefore,the chances of getting your loan approved becomes higher. You just need a regular monthly income for an easy approval.
Unsecured loans You need not pledge anything to receive a payday loan. An authorization to electronically withdraw your money from your bank account on a fixed date is sufficient guarantee of repayment for the online lender.

Drawbacks of Online Payday Loans

High rates The interest charges of online payday loans are sky-high. You end up incurring huge costs for meeting your urgent situation. Consider this type of loan as your last resort to avoid getting into a debt trap.
State bans Online payday loans are legal in many states but they are banned in quite a few like Georgia, Massachusetts, Pennsylvania, West Virginia, etc. Many other states have formed their own rules with regard to the terms on which payday loans can be granted. Check for your state requirements before making a decision.
Wise Words
Online payday loans are a great option for borrowing instant funds when you are sure to repay the principal amount and interest from your next salary. However, you shall avoid them if you are no tin dire need of money as it might lead to a debt trap.Asking yourself “How do online payday loans work?” will help you decide whether you want to take out a payday loan or not

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