With the clamor for financial inclusion, credit institutions have come up with loans that can address the funding requirements of people with poor access to financial institutions. Payday loans are designed to provide credit-strapped people with quick cash. Although it’s convenient and quick, there are very few and specific situations wherein you’ll need a payday loan. But, before you get one, you need to understand what payday loans are all about.
What Are Payday Loans?
Payday loans, also known as cash advance loans or salary loans, are short-term loans extended to a borrower specifically based on the borrower’s credit profile and income. In fact, the term “payday loan” gives it away. To clarify, this means that the amount that you can borrow is equal to or less than your current monthly income. The tenor of these loans is usually until your next paycheck or up to 30 days. This means that you must pay back the money within 30 days. Usually, these kinds of loans are used to bridge funding gaps between paydays.
Some benefits of payday loans include fast approval and minimal requirements. When applying for a payday loan, you just need to submit your pay slip and valid government-issued IDs. You don’t need to provide any collateral or security. Because of the short tenor, convenience, and little requirements, payday loans frequently charge a higher interest rate than other loans.
How Can I Get Payday Loans?
So, when you are faced with financial difficulties and challenges, a payday loan may be a viable and quick solution for you in the short run. The question that’ll come to your mind is “How can I get a quick payday loan online?” Here are some tips on preparing for payday loans and how to get a payday loan online.
- Do Your Own Research
The first step in getting a payday loan is to do your own research. There are tons of different companies and credit institutions that offer payday loans. You can even apply online, for example, on Payday loan Ontario. Study all the options and list down websites that offer payday loans online.
When it comes to online loans, you should be careful while sending your personal information to any institution. Check the credibility of each online credit institution. Before even applying, do a quick background check to make sure that the institution has a good track record and it’s legitimate. It’s better to be safe than sorry. You should focus on reputable institutions such as online payday loans Toronto.
Next, find out all the requirements for applying. Before you apply, make sure that you meet all the requirements that the institution is asking for. Not all payday loans online ask for the same set of requirements.
Then, check out the rates that they’re charging. Of course, you should borrow from the one that charges the lowest interest rate.
- Open a Separate Savings Account
As a word of caution, payday loan providers usually ask for access to your payroll account so that they can automatically debit your balance for repayment on payday. Therefore, you should open a separate savings account in the case that your payroll account is emptied by your creditor.
Having a separate savings account will also serve as a cushion when you get a payday loan. The discipline of funding your savings account will also prevent you from defaulting on your payday loan payments.
- Go Through the Terms and Conditions and Read the Fine Print
The terms and conditions of the payday loan company are often hidden when you are on a website. You must locate and understand all the terms and conditions before applying for a payday loan online.
Read the terms and conditions carefully and go through the fine print as well. If you don’t understand any part, it’s best to consult someone knowledgeable in the matter before applying. You can approach your friends who have applied for payday loans. You can even consult a lawyer. In addition, you can do some research on the internet if you don’t understand any term. Forums on Reddit or articles on Investopedia may help you out.
- Learn the Application Process
The process of getting a loan from the bank is different from getting one online. It’s of utmost importance that you familiarize yourself with the process of online payday loans because there’s no one to assist you. Usually, the website of the payday loan provider will have a step by step tutorial or a how-to page about the application process. Read this thoroughly before moving forward with the application process.
- Prepare Friends and Family as Character References
When you apply for a payday loan online, the lender may ask you for character references and their contact numbers. So, before you apply, you need to select some friends or family members to become your character references. Then, give them a heads up that someone from a payday loan company may call to ask about you. Afterwards, ask for their contact information, which is usually their email addresses and cell phone numbers.
- Apply for a Payday Loan Online
Once you’ve narrowed down the payday loan provider that you’ll want to get a loan from, you can go to their website and start applying for one. Before applying, make sure that you already have soft copies of your pay slips and valid government-issued IDs. Just click on the apply button, fill in all the necessary details. After that, the site will bring you to a page where you can upload your pay slips and valid government-issued IDs.
Then, they’ll ask for your payroll account details. This is the bank account where they’ll be depositing your loan funds. After submitting, you just need to wait for a day or two for the approval. If the loan is approved, you’ll see the funds in your account immediately. It’s as easy and fast as that.
What Are the Advantages of Payday Loans?
Now that you know what payday loans are and how to apply for them online, here are some advantages of payday loans that you’ll want to consider.
- No Credit Checks
One of the most advertised benefits of payday loans is that they have no credit checks. This means that you don’t need to have a good credit score or credit history to get approved. On the other hand, it’s almost impossible to get a regular loan without a good credit score and credit history. Therefore, most of the people who go for payday loans are those who are facing severe financial difficulties or don’t have an established credit standing.
- Easy Access
.Payday loans are all about accessibility and convenience. You don’t even need to go to a bank or an office to apply for a payday loan. You can simply do it online, anytime you want. You only need to have a stable internet connection and a smartphone or a laptop to access the website. You must keep soft copies of your pay slips and valid government IDs handy. When you are ready, you can simply apply online and upload all your documents. Then, after a few days, you’ll receive a notification on whether or not your application is approved. Traditional loans take a much longer time and the process is more cumbersome.
- Minimal Requirements
Since payday loans are designed to reach the people who have financial difficulties or who don’t have complete documents, the requirements for applying for payday loans is minimal.
Traditionally, banks require social security numbers, credit checking, and collaterals. Fortunately, for payday loans, you only need to meet very few requirements to apply. Just to give you an idea, for getting a payday loan online you must:
- Be at least 18 years old
- Have a valid government-issued ID
- Have a regular source of income
- Have an active bank account
If you are already working, meeting these requirements will be a piece of cake.
- No Collateral Loan
Unlike traditional loans such as home and car loans, you don’t need to put up your car or property as a collateral when you get a payday loan. This means that if you ever default on the payday loan, the bank will not seize your personal belongings and property to recover the pending payment. So, you won’t have to worry about that any longer.
The catch is that the lenders for the payday loan usually have access to your bank account. This is because in a payday loan, lenders usually take your pay on every payday for repayment of the loan.
What Are the Disadvantages of Payday Loans?
Of course, just like everything else, payday loans also have their disadvantages. Here are some of the pitfalls of payday loans:
- High Cost of Borrowing
Because of the convenience, minimal requirements, and unsecured loan benefits you are experiencing, the risk borne by payday lenders is higher. The cost of this risk is transferred to you as interest rate. This is why payday loans usually have high interest rates as compared to the traditional loans. The interest rate depends on the lender. So, you also need to be wary about the rates.
For instance, the interest charged can range from 15 percent to 30 percent depending on the lender. Even if you are only borrowing for a few weeks, the cost may worsen your financial situation. Moreover, if you miss a payment, the interest will just keep piling up, and a vicious cycle of continuous payday loans will begin.
- Effect on Credit Score
If you are thinking that getting a payday loan will somehow build your credit score, then you are totally wrong. Payday loans won’t have an effect on your credit score if you make timely payments. In fact, most lenders for payday loans don’t even bother to report it to any of the major credit bureaus. At the same time, having a payday loan does not build credibility since the requirements of getting one are minimal. Moreover, the tenor for payday loans is only 30 days.
However, it’s not the same if you default on your payday loan repayments. Even if the lender does not report this, credit bureaus will still be able to find out if you’ve got any past payday loan dues. Collection agencies often report these situations to the credit bureau.
In effect, having a good performance record on your payday loans will not make a difference. However, a small misstep on your payday loan can mean that you may never be able to get approved for a credit card, much less a regular loan. When the time comes to borrow money for a car, you may not be able to do so because of your bad record on payday loan repayments.
- Automatic Payment
Payday loans may lead to additional charges too. Remember that some payday lenders will require you to give access to your bank account for repayments. The catch is that the lender will be given the authority to take payments from your account without prior notice.
Even if there’s no money in your account, the lender can still withdraw money from your account. When this happens, you’ll incur additional charges from the bank. This can worsen your financial situation. This will also go into your credit record.
- Renewal Fees
If the borrower is unable to pay back the payday loan on its due date, he/she has got the option to renew the loan or take out a new loan. Following this, even though you make token payments, the amount that you owe will just keep getting bigger and bigger. Your interest charges, in the long run, will keep increasing while the principal amount will remain the same.
As you can see, it’s very quick and easy to apply for payday loans online. You just need a stable source of internet, a smartphone or a laptop, your pay slips, and valid government IDs. Just look for a reputable online payday loan provider with the lowest fees and apply on the website. It’s that easy. However, you must understand the terms and conditions before applying. Factoring all the pros and cons, you can judge whether or not a quick online payday loan is suitable for your needs.