Cash loans, often referred to as payday loans, are short term loans designed to resolve an immediate financial crisis. Most cash loans of this type last for a period of two weeks to a month and can only be obtained for small amounts. The state in which the loan is being requested may have laws in place to limit the loan to a few hundred dollars while some states allow personal loans of this type in amounts up to $1,500. When you obtain a loan of this type, you write a check or sign an electronic bank transfer agreement so the funds may be repaid on an agreed upon date.
How Does This Type of Loan Work?
When you apply for the funds, you must complete a brief application, providing basic details about your employment, monthly income, place of residence, etc. Once this information has been shared, you know if you have been approved in a very short period of time, often within minutes. You then provide the lender with a post-dated check for the loan amount plus any interest and fees. Once the check is turned over, the funds are deposited into your checking or savings account and can be used immediately.
When the date on the check rolls around, the lender deposits the check. If the funds are not available, your bank may charge you an overdraft fee and interest and fees continue to accrue on the loan. For this reason, care must be taken to guarantee you will have the funds on the agreed upon date before taking out this or any loan.
What Happens if You Can’t Pay the Loan Back as Agreed?
If something happens that is out of your control, contact the lender immediately! Don’t avoid the lender as options are available when this is the case. Often, the lender can roll the loan over which extends the due date to give you more time to repay the funds. Be aware that this is not an option which should be used lightly as fees continue to accumulate until the loan is paid in full.
If you avoid the lender, he or she may try to deposit the check more than once, leading to higher overdraft fees and possibly other bounced checks and bank fees. In addition, your failure to pay may lead to you having a ChexSystems file which means retailers and banks know about your financial difficulties and can refuse to work with you. Another option lenders have is sending the account to collections which further harms your credit score. Work with the lender so this is not the case.
Who Qualifies for Cash Loans?
You’ll often hear these loans referred to as bad credit loans as most people qualify for loans of this type. Lenders typically do not check your credit report or request your credit score. To obtain a cash loan, most lenders require you be 18 years of age or older, have a steady job which brings in a monthly minimum income, prove you are a legal citizen of the country and have a checking or savings account which is active. This account should allow for direct deposit as this lets the lender deposit the funds immediately so you have access to the cash. Some lenders may require proof of residency in the form of a utility bill so be sure you understand what documentation, if any, must be provided to obtain the funds.
Why Are So Many Against Payday Loans?
Payday loans have earned a negative reputation over the years and, for the most part, this reputation is undeserved. Unfortunately, as with all industries, you will find some dishonest payday lenders, but their numbers aren’t very high. Payday loans also come with a high annual percentage rate, but consumers need to remember these loans aren’t designed for the long term. Although the annual interest rate can be 400 percent or more, when you divide this by 12, for loans with a repayment period of one month or 26, for loans, due in two weeks, you’ll see you are paying a much lower interest rate. Compare this to bounced check bank fees, over-the-limit fees charged by credit cards, reconnection fees charged by utility companies and the like and you’ll see a payday loan makes good financial sense.
Do I Have Other Options?
Put aside money each week for unexpected emergencies. Although you may find this hard to do, make an honest effort to do so. Start by putting aside $1 the first week, $2 the second, $3 the third and so on. Doing this for a one year period will leave you with more than $1,000 in the bank for these times. Obtain a credit card and only use it for emergencies. Define what an emergency is before the credit card arrives so you aren’t tempted to pull it out for a sale at your favorite store. That’s not a true emergency! Request an unsecured loan from your credit union or bank or ask for a loan modification or repayment plan with a utility, credit card or lender. All are options which should be explored along with cash loans.
Payday loans aren’t to be used to pay for recurring expenses. Doing so can lead to bigger financial problems. We all have times though where cash runs short for whatever reason. This may be a medical crisis, a broken appliance in the home or a vehicle that no longer runs. The key to successful borrowing when it comes to cash loans is to use them only in desperate financial times and to pay them back as agreed. Doing so ensures you resolve your financial crisis without creating a newer, much bigger, one.