Borrowing money is an extremely common activity. According to Credit Summit, around 12 million Americans use payday loans alone each year.
If you’re looking to avoid complicated and lengthy applications, a payday loan offers a quick and easy way to get cash with very few eligibility requirements. The following guide will delve deeper into the nature of payday loans, their benefits and drawbacks, and some essential tips for first time borrowers.
What Is A Payday Loan?
A payday loan is a short-term loan that is usually borrowed for a few weeks before a customer receives their next paycheck. The purpose of a payday loan is to help boost a borrower’s finances so that they can pay for pressing expenses that cannot wait until their next payday.
Payday loans are only legal in 37 of the 50 US States and due to the nature of the financial product, there are certain regulations that exist to protect borrowers from being overcharged. See the conditions stated below for the 37 US states where payday loans are legal:
|State||Maximum Loan Amount||Maximum Loan Term||Maximum APR|
|Illinois||$1,000 or 25% of gross monthly income||120 days||404%|
|Indiana||$550 or 20% of gross monthly income||Not specified||382%|
|Montana||$300||31 days||36% small loan cap|
|Nevada||25% of gross monthly income||35 days||No limit|
|New Hampshire||$500||30 days||36% small loan cap|
|North Dakota||$500||60 days||487%|
|Rhode Island||$500||Not specified||261%|
|South Carolina||$550||31 days||391%|
|South Dakota||$500||Not specified||36%|
|Texas||Not specified||Not fixed||662%|
|Utah||No limit||70 days||658%|
|Washington||$700 or 30% of gross monthly income||45 days||391%|
|Wisconsin||$1,500 or 35% of gross monthly income||90 days||547%|
|Wyoming||Not specified||1 month||261%|
What Can Payday Loans Be Used For?
Payday loans can be used for important expenses such as medical bills, dental fees, rent, funeral costs or school fees. Loans for home repairs or car fixes are also reasons why you may want to take out a payday loan. They can help in situations when payments cannot be delayed.
Payday loans are not intended to be used for any unnecessary spending such as on shopping, partying or gambling. Likewise they should not be used to pay for other outstanding debts.
What Are The Advantages of Payday Loans?
Are you low on cash but have urgent bills that need to be paid right away? Or do you have an unexpected cost or immediate expense that cannot wait. In this case, borrowing a payday loan may be a good option for you.
Payday lending offers a convenient, speedy and simple way to get fast cash. With easy accessibility, borrowers can have funds transferred into their account very quickly.
No assets or guarantors are required and the minimal eligibility criteria is extremely appealing. Borrowers simply need to be a US resident aged over 18 years old, earn a regular income of around $500 a month and have a live checking account for the funds to be deposited into.
What Are The Disadvantages of Payday Loans?
Payday loans can come with high interest rates which is not surprising since lenders take a big risk when helping borrowers to quickly secure cash. It’s therefore important to only borrow money this way if you are confident that you will be able to manage repayments as otherwise you could face additional interest and fees which can become difficult to pay back.
What Should First-Time Payday Loan Borrowers Consider?
There are many questions you should take into consideration when planning to take out your first payday loan, such as:
Is the loan necessary?
When planning to borrow money, you must make sure that you have a good enough reason to take one out. Make sure it is for an essential payment that cannot be delayed rather than an unessential item such as a new bag that might go out of stock.
Will I be able to manage the payday loan?
Managing expenses can be tricky so definitely work out a budget to see if repaying back a loan after you receive your next paycheck will fit in with your other living costs such as rent, utility bills or any other upcoming expenses you may be faced with.
Will I be able to repay the loan?
To avoid an endless cycle of debt, it’s essential to make sure that your source of income will be enough to afford the repayments. Do not commit to something you will not be able to repay back.
Payday loans have proven to be extremely helpful for many Americans. Providing that you take into account the tips mentioned above and are certain you will manage repayments, then it could be a viable option for you. Prioritizing needs over desires and using the money properly will help make sure that you have a good experience with payday loans.