How Do Payday Loans Work? Your Simple Guide to Cash in a Dash!

Looking for a quick loan i.e. a small amount of cash in a hurry? A payday loan is for you! If you’re wondering ”how do payday loans work?” learn more here!

58% of borrowers turn to payday loans as a way to meet their monthly needs. This is just one of the many ways that payday loans provide people with the help they need when they need it. So, how do payday loans work? It’s important to know the ins and outs of this type of loan if you plan on applying for one. 

Read on to learn more about payday loans, how they work, and if a payday loan is the right choice for you. 

How Do Payday Loans Work

Payday loans are a smart option for those who need a reasonable amount of cash quickly but are unable to wait until their next paycheck. This form of loan typically does not involve credit checks, instead, the consistency and amount of your paychecks are reviewed to see whether or not a potential borrower can be approved.

Once approved, the borrower will leave the loan company a personal check for the amount borrowed and the interest payment. When the next paycheck is deposited the loan company will cash the personal check to reclaim the amount. 

Who is Eligible for a Payday Loan 

There are a number of reasons and situations where a payday loan may be a smart solution. If a sudden emergency comes up or you need to make a one-time payment (such as a deposit), a payday loan is a great way to get the money in a hurry.

Payday loans also favor those with poor or no credit history, as the loan is based more on your monthly income than your prior credit history.

Common Myths About Payday Loans

There are a number of myths that surround payday loans and how they work. Not only is this information false, but believing them can land you in some serious financial trouble. To save you the headache, here are some important myths to be aware of when taking out a payday loan:

Myth 1: Payday loans can be paid back in payments or cycles

Fact: The loan and the interest payment must be returned in one full payment. 

Myth 2: I can decide which paycheck goes to paying off my loans.

Fact: Your loan payment and interest payment will be deducted from the first payment that comes into your bank account: 

Myth 3: Everyone can take out the same loan amount.

Fact: The amount of money you will receive in a payday loan will depend on how much you receive in your monthly paycheck.

If you have received any information on payday loans through family or friends, we strongly recommend checking with the loan company prior to taking out your loan. 

Where to Find Payday Loans

You can find payday loans through a number of loan officers and lenders, however, it’s important to remember that not all loan companies are created equally.

When comparing payday loans from different financial lenders, be sure to look into the different interest rates and the rollover amount. You can also check online for lender reviews to see how friendly the loan officers are as well as how willing they are to work with lenders.

Finally, you’ll want to find lenders that are willing to loan the amount you need. While many lenders are willing to give the last $150 you may need to compete for the rent, you may find it more difficult to find a loan once you get into the thousands. 

You may find it more convenient to work with an online loan company, like Bonsai Finance, that can provide you with a variety of loan options.

Online loan companies also tend to come with greater experience and better interest rates than traditional loan companies, while offering better support.

What to Ask a Payday Loan Company 

There are some questions you should ask your loan officer before taking out a payday loan. These questions include:

  • What date and time will the loan amount be taken from my bank account?
  • What is the penalty cost if the money has not been deposited in time?
  • Will I need another form of collateral?
  • Will I need a co-signer? 
  • What are the interest rates on my payday loan? 
  • What other loan options do I have?
  • Do your other loan options require credit checks?

Remember, you don’t want to get stuck with any surprises. The more information you can gather ahead of time, the better. 

Other Types of Loans 

If you feel that payday loans are not the right options for you, there are other loan options that may be available through your loan office. These options may include:

  • Personal Loans
  • Online Loans
  • Segmented Payment Loans
  • Same Day Loans
  • Loans for Bad Credit
  • Loans for Those with No Credit 
  • Installment Loans 

By knowing your credit score and your current financial health, you’ll have a better idea of which loans you are eligible to receive. 

Enhancing Your Financial Health

Knowing how a payday loans work is just one of the many important steps you can take to get your financial situation in order. We have all had moments of struggle where the bills pile up faster than we can pay them. If a loan is the only way to get back on your feet than do it. However, once you have paid your loan off it’s important to take the right steps to avoid stressful financial situations from occurring again.  We suggest reading our blog on Quickly Paying Off Your Debts to get your loans paid off in an easy and timely manner. 

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