payday loan are typically short-term, unsecured loans that carry high interest rates and typically do not require a credit check.
Although there is no precise, universal definition for the term, the U.S. Consumer Protection Agency states that this type of loan is generally $500 or less and is typically due on a borrower’s next payday. States have different laws governing these types of quick loans, but they may be available to Americans through payday lenders or banking on-line, depending on location. The due date on payday loan is typically two to four weeks from the issuance date, and lenders generally do not consider the borrower’s creditworthiness or ability to meet other financial obligations when approving the loan.
To secure a payday loan, payday loans often require the borrower to submit a personal check in advance for the amount of the loan plus interest and fees for the future deposit. They often require direct access to the borrower’s bank account.
Payday lenders hold the personal check until the borrower receives his next paycheck, or direct deposit social insurance Payment. Depending on the terms of the loan and the laws of each state, some payday lenders offer long-term repayment plans that entitle them to make multiple electronic withdrawals from the borrower’s bank account.
The average payday loan term is about two weeks, and the loans typically range from $50 to $1,000. In return for quick loans that don’t require a credit check, payday borrowers typically pay exorbitantly high interest rates and fees on their loans. Payday lenders often charge annual percentagesor APR, of 400% or more on their loans, along with financing costs ranging from $10 to $30 per $100 borrowed.
The only requirements to qualify for most payday loans is an open loan bank account in relatively good standing, regular income and a source of identification.
Because little attention is paid to borrowers’ financial condition or creditworthiness, the CFPB has found that payday loans have a high default rate of about 20%. Additionally, about 80% of payday borrowers renew or reborrow loans within 30 days of their original loan.
Borrowers in eligible states can apply for a payday loan online from companies like MoneyMutual, CashUSA.com and BillsHappen. Many payday lenders also have thousands of physical stores across the US
In cases of financial emergencies or life and death situations, payday loans can be one of the only places Americans can participate bad credit may apply for temporary financial relief. However, due to the deception and predatory behavior prevalent in the payday lending business, the CFPB, the Federal Trade Commission, and other federal and state agencies have repeatedly warned Americans of the dangers of payday lending and restricted the activities of payday lenders.
A 2016 five-year study by Pew Charitable Trusts found that 12 million Americans take out payday loans annually and these borrowers collectively pay $9 billion a year in loan fees alone.
- Speed. Payday loans are fast, and lenders often grant same-day or next-day approval.
- User friendliness. It is usually easy to get approved for a payday loan as long as the applicant has a stable source of income, a bank account in good standing, and ID. Borrowers can even get payday loan approval online. While some critics argue that payday loans are inherently predatory, laws exist to protect borrowers’ rights.
- Availability. Depending on the situation, payday loans for bad credit borrowers can be one of the only viable sources of emergency cash.
- High costs. Payday loans can carry annual interest rates of 400% or more, and financing fees can be 15% to 30% of the loan amount. These high interest rates are even more striking when compared to the national average of around 16.17% credit card interest rate or the average interest rate of 4.25% for a period of 30 years mortgage from the end of February 2022.
- debt cycle. Because of the interest and fees, a payday loan can easily require the borrower to hand over the bulk of their next paycheck, creating the potential for borrowers to get caught in a cycle of repeat loans.
- Harassment. Payday lenders have a reputation for exploiting financially vulnerable borrowers and engaging in aggressive and harassing collection practices.