How to Safely Receive and Pay Back Installment Loans
Payday loans, or installment loans, are extremely useful financial instruments for individuals who have no credit score or a very low one. These loans do not involve a credit check, which means anyone with a bank account can apply for them. But many individuals are hesitant about applying, as they are unsure about the specifics of the loans. Below is a short guide on installment loans.
What are Payday Loans?
Online payday loans are short term loans that are available to individuals who have a U.S. bank account and preferably a job. Any person can apply for online payday loans from Friendly Lender if they provide their personal and checking account information, but there is no credit check.
These are short term loans that are only meant to be handed out for a few weeks. They are not long term loans that you pay overtime, but a modest cash injection into your bank account that is due back when you receive your next paycheck.
Most payday lenders offer a term of two or three weeks on a payday loan, while the interest rates vary from 250% to 400%, depending on the lender and borrowing amount. While such high rates may scare people, the dollar equivalent is very low. A $300 payday loan would only have $15 or $20 in interest payments at the end of the two or three week period.
Who Needs Payday Loans?
When you ask people if they have heard about payday loans, most say yes. But many of those individuals are not sure about the purpose of such loans. They always ask: “who should be taking out a payday loan?”
It is an excellent question and one we will answer. A payday loan is meant to benefit an individual who needs a little bit of cash to get them through the next few weeks. They need that money urgently, which is why they cannot wait for approval of a personal loan from a bank.
Say you have less than $100 in your bank account, but your car’s alternator is busted. Now you need to spend a few hundred on a new part, which cannot wait, as you use your car to get to work.
A payday loan would help you immediately pay for the part, which allows you to head to your next few work shifts with minimal interruption. If you did not have the loan, you would have either spent a lot of money on taxis or skipped work. Those expenses (or missed earnings) add up to a lot more than a payday loan fee.
Other Ways of Using Payday Loans
It is also helpful to use payday loans if you are worried about an overdraft on your bank account. Say you have an automatic bill payment scheduled for the coming days, but you only have $100 in your bank account. Now you may end up incurring a $35 charge each time you overdraft as those auto payments go through.
A single overdraft charge costs you more money than a payday loan fee. It is the reason why getting a payday loan allows you to pay your bills and keep up with expenses, while you can pay back the loan when you get your next paycheck.
Payday loans are also very helpful for people who have low to no credit, as they are one of the few ways you can borrow money. Some payday lenders do report to credit agencies, which means that you can improve your credit rating if you successfully borrow and pay back these loans over several years.
Being Careful with Installment Loans
There are no inherent risks with payday loans. The terms are very clear, as you are told before signing the contract about the total loan sum, interest, and when the loan is due. The danger lies in taking out a loan when you are not sure how you will pay it back.
Keep in mind that even payday lenders that do not report timely payments to credit agencies may sell unpaid loans to a debt collector. When that happens, it can impact your credit rating.
It is imperative to remember that a payday loan is a short term borrowing agreement. You are pledging to pay back the money and interest in two or three weeks. It is vital to only take out a payday loan if you are 100 percent certain you can pay it back on time.
Those who are careful with payday loans have an incredible asset they can leverage anytime they are in a financial spot of bother. Rather than missing expenses, being late on bills, or incurring overdraft charges, you may only need to get one payday loan to stay current on your finances.