Payday Loan Facts Everybody Should Know [Even If You Wouldn’t Apply]
Never was there a story of more woe than a story about people who don’t have enough money. But that’s not the end of life, there are a lot of variants on how to cope with financial emergencies and they vary due to the situation the person appears in. Borrow money from friends, cut expenses, save every month, find a part-time job… But the majority prefers to get money here and now. And the onliest way to realize it is to apply for payday loans online.
But does everybody know what it is and how does it work? What should you know about payday loans before applying? The article is worth reading even if you are not going to apply for a payday loan in the nearest future.
What Is a Payday Loan?
Let us start with the definition. Payday loans are online short-term loans. You can’t apply for this type of loan at traditional banks, only micro-financial organizations and direct online lenders can provide you this service. The amount can be a difference and it counted individually according to your income and based on the data about your previous salaries. But usually, it varies from $100 to $1500. Shall now proceed to impressive facts.
#1 Usually, the Borrower Applies for 8 Payday Loans Per Year
A payday loan is easy money. When you realize that you can get money without any difficulties and nobody will check where you are going to spend them, people can’t stop. Repaying the first loan, they apply for the second and the next one. And according to official data, the average payday loan user takes 8 loans every year. So, think twice before applying for the loan, and don’t get into a financial gap when you are going to apply for the next one.
#2 Only 20% of Borrowers Repay Payday Loan in Time
Yes, this type of loan is lent for quite a short period (only 2 weeks till the next salary) and not everybody can deal with their financial issues for this time. Borrowers are covered by one payday loan applying for another one with a larger sum. 4 of 5 payday loans are rolled over and finally, the borrower pays even more interest than was discussed in the loan agreement initially.
#3 Credit Score Matters
Probably, you heard such phrases as “no credit check loan” or “payday loan even with bad credit”. But there are no loans without a credit check. Every lender makes at least a soft check of your credit and if it is too low, you can get refused. Moreover, the lower your rating the higher the interest rate will be in your loan agreement. That is why take care of your score and try to improve it. Making any financial operation, think about how it will affect your credit not to harm it.
#4 The Final Cost of Loan Usually Is More Than the Loan Amount
As we noted in #3 fact, too low a percentage of people can repay the loan in time. That is why the interest rate is growing and growing. And when the person decides to repay the debt he pays the loan amount (for example, $500) and the same or even more sum as a fee for using that money. The moral of this fact is don’t take a payday loan if you are not sure you will repay it in time. Otherwise, you will have to pay too much for this “easy fast money”.
#5 In Some Countries Payday Loans Are Banned
Loans are the reason for poverty increasing. A vicious cycle that is hard to break. People turned to loans in the case of money problems and with a hope to solve all the issues for a short period. Instead of this, they get high-interest lending which only exacerbates the situation and increases the debt. And the longer you don’t pay the more you’ll have to pay in the future. To avoid this, different countries refused payday loans at the national level (for example, 18 states of America don’t allow this lending service).
#6 Average Loan Delay Is Almost Half a Year
A two-week loan sometimes becomes a debt trap. We have already written about what happens when a person doesn’t pay a loan in time. And on average, a person needs 175 days to repay the debt completely.
#7 People Usually Borrow Up to $500
According to statistics, the average sum people asked for is between $400 and 500 dollars. The minimum sum is usually $100 and the maximum nearly $1500. But you can pretend on it only if your income is rather high. So, usually, the loan amount is 450 dollars, and the reasons to get it are rather non-important. Some people apply to buy new clothes, make a purchase in the supermarket or simply have a rest. The main problem is that payday lenders don’t ask the aim where the borrower is going to spend money. That is why people ask for money even if they don’t really need them now.
Payday loans are such a service with which you should be much more careful than you think. It can be both your salvation in the case of money lack and the first step to bankruptcy. You’re on the razor’s edge if you use this lending solution. But don’t refuse this option at all.
Sometimes there is no better solution than to ask for a same-day short-term loan to get urgent money. You first make sure you will be able to make payment in time not to roll over the loan. And before applying, evaluate the necessity of this money right now and compare it with the total cost of the loan. If the payday loan is still worth it, don’t be afraid to apply.