In times of emergencies and unexpected expenses or to put food on the table, working families rely on payday loans. People with good to excellent credit history and steady employment have lending alternatives with low interest rates and long-term installments. For individuals with bad, fair or no credit, APR is much high. These entities charge high interest rates or fees and require full payment within a 10-day period and no credit check. This overview will discuss various topics, including what a payday loan is, US regulations, requirements, and benefits.
Definition of Payday Loan
Lenders refer to payday loans as an unsecured cash advance with minimum requirements to qualify and quick application process. FDIC defines cash advances as a short dollar or small dollar loans which don’t follow the banking practices as financial institutions. The interest rates or fees range from 300 to 500 average percentage rates. A 2015 Pew study reported approximately 12 million people in the United States paid over $7 billion in fees. Below is a list of payday loan types a variety of lenders refer to their lending services;
- Check Advance
- Cash Advance
- Bad Credit
- Deferred Deposit
- Short Term
- Short Term
- Fast Cash
- Quick Loan
Consumer Financial Protection Bureau provides regulations on how much and limitations on the interest rates or fees lenders charge borrowers. It provides usury protection to consumers to avoid extreme percentage rates. The rules may differ in various US States and some may not allow payday lending at all. For an example, District of Columbia, Arkansas, Georgia, New Mexico, and North Carolina don’t allow lenders to offer cash advances. As of 2018, there were 38 states that allow payday lending with some of them having no regulations.
Requirements to Apply for Cash Advances
- Valid ID or driver’s license
- Social security number
- Proof of employment or earnings using pay check stubs or bank statements
- Address and legal residency
- Checking account with a bank
- Authorization to withdraw money electronically from bank account
A lender may run a soft credit check using your social security number which does not count against the borrower. Hard credit checks affect credit scores with Experian, Equifax, and TransUnion.
Benefits of A Payday Loan
The best benefit of payday loans is having quick access to cash when you need it. The application process takes up to five minutes online over the internet and access to the cash within 24 hours. People use payday loans mainly for emergencies and when coming short on paying for household expenses. If a borrower cannot make full payment by its due date, lenders offer repayment extensions to their customers.
A storefront payday lender can take longer to process applications depending on the number of customers. The waiting time can be up to an hour to submit an application and prolong access to cash. Consumers can use mobile phones or computers to apply online for a cash advance in their home or anyplace.