Crises are inevitable. And they can get you at your lowest time. That is when payday loans prove to be significantly beneficial. Essentially, payday loans are instant credits designed to cover emergency and short-term expenses. They are effective in helping you through critical situations between the pay dates. But are there payday loans for bad credit? Does one’s credit score affect the provision of payday loans? And what are the criteria and requirements for payday loans?
This article will explore various aspects of payday loans, answering some of the most frequently asked questions about payday loans. Read through to the end for insights.
What are payday loans?
A payday loanis an unsecured personal loan usually payable by paycheck or income and due on the next payday. Some lenders, however, offer installment plans, extending the loans over a particular period – up to several years. Typically, the loans come with a significantly higher interest rate and APR due to a lack of collateral. Usually, the interest rates are fixed as the loans are supposed to be repaid in full at once. However, some lenders offer floating interest rates.
The best thing about payday loans is that they are easy andfast to acquire. Usually, the lenders do not conduct complete background checks on borrowers’ loans eligibility – no hard credit checks. However, note that some lenders may ask for a hard credit check to determine your creditworthiness.
In addition, there is not much paperwork. Application is usually made online or at a brick-and-mortar office.
After loan approval, the cash takes as long as your bank takes to process payments. Usually, lenders take 5 – 60 minutes to process your request, making the loans suitable for solving emergency financial crises.
What are the Payday Loan Interest Rates?
Typically, payday loans are also subject to usury laws. Therefore, they are regulated under the strict Financial Conduct Authority(FCA) guidelines,unlike in most states where payday loans are exempted in usury laws. Specifically, the rules limit the interest rate to 0.8% per day. Also, borrowers should not pay more than double the original loan amount. On that note, different lenders offer varied interest rates. Thus, it is advisable to always check loan terms before applying for a payday loan from any company. Note that some lenders have flexible terms, which also apply to interest rates.
What are the criteria and requirements for payday loans?
Notably, the payday loans application process and requirements vary depending on the lending company. Some companies offer online services – application is entirely online – while others have on-site offices. Interestingly, the payday loans application process is fast and straightforward. All you need is to fill out the application form and submit it with certain verification documents. Usually, lenders ask for personal details, including your names, contact and residential information, employment, income, monthly expenses, and bank account number. Essentially, the information you submit determines your eligibility and the amount you can get.
Other requirements include:
- Verifiable pay stubs from your employer – usually most recent stabs
- Identity verification document(s)
- Proof of address.
Some lenders may also ask for a financial statement.
Does Credit Score Affect the Provision of Payday Loans?
Typically, an individual’s credit score is not required while applying for a payday loan. Therefore, your score does not significantly influence the provision of the loans. Lenders usually do not conduct hard credit checks. This makes payday loans ideal for people with bad credit scores.
Usually, lenders rely on your paycheck – your income amount – and the monthly expenses to verify your loan eligibility.
How Do Payday Loans Affect Your Credit?
Notably, payday loans are like typical traditional loans, and therefore they can have a significant impact on your credit score. However, the loans rarely impact credit scores as they are usually linked directly to your payment method. Thus, the loan amount or due installments are automatically deducted from your bank account.
Pros:
- Easy to apply
- Fast
- Limited credit checks – suitable for bad credits
- Easy repayment process
Cons:
- Payday loans have incredibly high interest rates
Final Thoughts:
Payday loans are highly beneficial and easily accessible. Therefore, they can be a better alternative for covering emergencies. Better yet, they are accessible to everyone regardless of individual’s credit score. However, their high interest rates can significantly impact your financial status and credit score. Therefore, it is advisable to evaluate your financial ability before applying for a loan.
