Payday Loans Introduction
Many Americans are grappled with unexpected bills and expenses. When faced with this situation, they opt to borrow money from lenders who offer cash advance loans. These loans are commonly called payday loans. When a real emergency hits and cash is desperately needed immediately, many trusted lenders offer quick cash loans to people who need it the most.
What is a Payday Loan?
A payday loan is a short-term unsecured loan. Borrowers opt to take out payday loans as a quick fix for unprecedented expenses. It is offered to low-income households, usually to those who are unable to provide sufficient collateral to get low-interest loans. These borrowers come from communities where a majority of the population find it challenging to meet their monthly financial obligations. This type of loan does not require a minimum credit score. This means that applying for a payday loan does not impact a borrower’s credit score.
Payday Loan Statistics
In the United States, about 12 million Americans avail of payday loans annually. With this statistic, Americans are paying the staggering amount of money around $9 billion in cash advance loans fees per year.
The state with the most number of cash advance lenders is California. It is followed by Texas. The state of Rhode Island has the least payday lenders, with at least 5 registered institutions. The state with the highest annual percentage rate for payday loans is Missouri. It has as much as 1,950% on a 14-day loan worth $100. Many states who allow these types of payday advance require lending institutions to lay out all the information for borrowers before granting them a loan. Important types of information to give the borrowers are interest rates and service charges.
Many states that allow payday loans have restrictions, usually focusing on the number of loans that someone can take out. Although payday loans are legal in South Dakota, they are strictly regulated. The reason behind this is to protect its citizens. In this state, borrowers can only take out $500 at a time. The annual percentage rate of a maximum of 36% is also regulated by the Mount Rushmore state. 36% is also the maximum annual rate that is allowed in Colorado.
How Payday Loans Work
Essentially, payday loans offer the borrower quick cash loans. It is easy to procure a payday loan. Borrowers only need to show employment evidence and a record of their previous payslip. To qualify for a loan, borrowers need to be at least 18 years of age and a U.S. citizen. They should also have a verifiable income, a checking account, and a valid phone number. Many lending institutions offer same-day approval, particularly those that offer loans through online portals.
For people who are in desperate need of instant cash and they have bad credit, payday loans help tide them over. Borrowers are more concerned about getting the loan and generally ignore the high-interest rates. For instance, if a borrower gets a short-term payday loan, they are expected to pay a higher amount within two to four weeks.
Paying back the loan is usually done through installment. The loan can be paid either weekly or bi-monthly. Over the course of paying back a loan, borrowers will often pay double the amount that they borrowed. On top of this, payday loans also charge a finance fee. Finance fees range from $10 to $30.
Regulations to Consider
It is important to regulate payday advance loans because lenders have had a reputation for asking for excessive charges. These loans tend to become debt-traps. Therefore, many U.S. states are protecting their citizens through sound regulations. These service provider regulations include setting cap rates on lending institutions.
In the United States, payday loans are legal in only 27 states. There are 9 other states that allow short-term lending but with specific restrictions. It is important to note that there are certain states that prohibit payday loans. These states include Massachusetts, New Jersey, Arizona, Arkansas, Maryland, Connecticut, Georgia, New York, Pennsylvania, North Carolina, Vermont, and West Virginia.
Payday Loan Lenders You can Trust
If you really need to take out a payday loan and you have no other alternatives, here are the most important characteristics of trusted payday loan lenders:
1. Quick approval
Lenders of payday loans should offer quick approval, especially if the loan is offered through an online portal. Getting a cash advance loan online has a lot of benefits versus visiting a retail location. Borrowers don’t have to travel and wait in line.
2. Widely available
It is beneficial for payday lending institutions to operate in states where it is legal to offer payday loans. Having widespread presence means that they are able to serve customers at a location that is convenient for them.
3. Convenient application procedures
The best payday loan providers offer borrowers various convenient ways to apply. They can either apply online, in person or via phone.
4. Compliant with state laws
Make sure that lenders comply with state laws. It is best to look into their compliance when it comes to regulating loan fees, rollover restrictions, and loan terms.
5. Offers lower rates for trusted borrowers
A good lending institution should offer lower interest rates to borrowers who successfully repay loans. This is important for borrowers because getting the best rate on a payday loan can be challenging. It is a great relief for repeat customers who have good track records of making reliable payments to be able to secure future loans at a lower annual percentage rate.
Payday Loans: The Bottom Line
Before procuring a payday loan, it is highly recommended that research is done on state laws and annual percentage rates. While there are payday lenders who genuinely provide financial help and assistance to those in need, there are also those that operate only to earn money, asking for exorbitant charges that can possibly leave the borrower in debt for a long time. The main message for borrowers is to only go to trusted payday lenders. They should also think twice when they see attractive payday packages, especially those that seem too good to be true.