A payday loan can be described as a type of unsecured personal, short-term loan with a high-interest interest rate.
While lenders might use some of the borrower’s earnings as collateral, this is not always required to obtain quick credit. You don’t have to use collateral.
This makes payday loans a desirable choice for those with bad credit, high amounts of debt, or those in need of immediate cash.
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There are pros and con’s to this type loan. Payday loans can be dangerous so it is essential to fully understand them.
The pros and cons of payday loans
Payday loans, while alluring, are not perfect options for those struggling with poor credit. This type is not without its drawbacks.
Payday Loans: The Benefits
Payday loans in most states are easy to obtain and accessible.
Individuals looking for a loan can find a variety of options through online lending sites, individual creditors, and credit unions.
Payday loans don’t require a credit check and are therefore more accessible. Most lenders only require a current paycheck to apply. The ability of the borrower to repay is usually not considered.
Payday loans can be approved and processed quickly, making them a fast loan.
The loan principle and the borrower’s borrowing capacity for payday lenders are based on a portion from the borrower’s next salary. The amount will vary depending on which lender you choose and what state laws apply to payday-lending. Usually, the amount a borrower is allowed to borrow depends on their wages.
Payday loans are not typically secured by collateral. Sometimes, lenders may ask for collateral such as a percentage of the borrower’s salary. But this is extremely rare.
Payday Loans: What are the Cons?
A major drawback to payday loans is their interest rate.
Even with state-bystate regulations, payday loan interest rates can be quite high.
The annual percentage rate (APR) for an average, two-week payday loan with a $15 per $100 fee can run as high as 400%, according to the Consumer Financial Protection Bureau (CFPB).
Comparatively, the average APR on a credit card ranges from 12% to 30%.
Payday loans can be short-term, but are often very small. The typical borrowing amount is approximately $500.
Hidden fees may be attached to payday loans. These hidden fees, combined with high interest rates can cause payday loans to cost more than they are actually worth.
Payday Loans History
Since the 1990s, when payday lending became more common in the United States (payday loans) were being offered by unscrupulous lenders who discretely charged higher interest rates and added fees.
After the 2008 financial crisis, however, federal financial agencies such as the CFPB designed stricter laws to protect borrowers, making the lending market safer and more transparent.
Payday loan laws and restrictions are determined by the state. Payday loan annual interest rates are limited in New York City and New Jersey to between 25% and 30%.
Although federal and state management are helpful in preventing criminal usury, payday loan lenders can still pose a risk as some lenders will exploit loopholes to escape interest rate caps.
A payday loan applicant should carefully evaluate the terms of the loan, such as the interest rate and any associated fees. This will help to avoid being caught in a debt trap.
Each state has its own bank regulator designated to assist in managing in-state financial business. If a lender is licensed in your state to extend payday loan, the state bank regulators will be able to verify.
Payday loans in New York are regulated by the New York State Banking Department.
There are several other ways to confirm that a loan agreement is legitimate.
A financial consultant can help analyze the details of a payday loan agreement. Free financial counseling is available for members of GreenDay.
Our team of financial professionals works closely with borrowers, helping them to understand and discuss their current financial situation. We also help to identify the best path for achieving financial goals.
GreenDay Online Offers Other Personal Loan Options
Personal loans should have low interest rates. Consumers need to look at alternative loans for same-day cash due to the risks associated with payday loans.
A variety of options are available to consumers from trustworthy financial institutions.
A great, quick installment loan for those with bad credit is a personal loan. Personal loans are quick, offer reasonable APRs, require no collateral, and are not subject to any restrictions.
GreenDay Online offers low rates for unsecured personal loans (loans which do not require collateral), and secured personal loans (loans which do). Green Day personal loans come with a special 90 day grace period.
GreenDay Online allows borrowers to obtain unsecured loans for up 60 months.
GreenDay Online secured personal borrowing terms offer terms up to 144 months. These secured loans are backed up by a shared savings account, where deposits serve as collateral during the loan term.
With GreenDay, loan application and approval is quick, straightforward, and easy. Our financial department strives to provide peace of minds for our borrowers while we secure their loan.
To learn more information about the loan options available, and to ensure you are receiving the best loan option to suit your needs, contact us today.