What is a payday loan and how does it work?
Payday loans are short-term, unsecured, small sum loans that can be availed by people for emergency expenses. Payday loan lenders will provide the loan to individuals who have met the relevant loan qualification requirements after they allow electronic access of their bank account to the lender or after they offer a personal check of the principal amount plus interest, fees, and other charges that can be deposited by the lender at a predetermined date.
After the low interest payday loans same day gets approved, the burrower may deposit the check given by the lender in his bank account and take out cash to be used for car repair or other emergency purposes. Payday loan lenders deposit the check given by the burrower on the next payday of the burrower and get the loan repaid as one lump sum amount. If a borrower is unable to repay the loan on the date stipulated in the loan agreement, then he can ask the lender to roll over the loan to a next agreed upon date and pay the lender the applicable finance charges for the roll over.
If a burrower has taken out a larger sum as payday loans with very low interest rates, then the payday loan can be repaid over a longer period of time in the form of installments. Such repayments are directly taken out via ACH from the borrowers’ bank account by the lender, or the lender may redeem the checks issued by the burrower on pre-decided dates.
The amount that can be burrowed as payday loans with no interest on the first loan varies from one state to another, often between $100 and $1800, and is dependent on the legal maximums stipulated by the state laws. The APR or annual interest on payday loans generally cost 400 percent or more. For longer term payday loans, the APR can be 390% to nearly 800% APR. The finance charges for a $100 payday loan may range from $15 to $30. The fees, finance charges, and interest rates tend to higher in states where the maximum cost is not capped.
Any individual who is a citizen or a permanent resident, is 18 years or older, and is employed and can provide proof of income can avail of payday loans no interest on first loan. Some payday loan lenders may ask for a valid phone number and an active bank account. Lenders do not perform a credit check before approving the payday loan. Thus, people with bad credit can also get payday loans with very low interest rates. It may however be noted that all repayment defaults get reported by the collection agencies of the payday loan lenders to the major credit bureaus, which can subsequently have an adverse impact on the credit score. It is therefore very important to repay payday loans on time, to avoid lowering of the credit score and falling into a debt trap.
Burrowers can apply for payday loans online, or at payday loan stores, or at offices that sell different financial services.