Payday Loans for Borrowers with Bad Credit

No doubt you have seen those little establishments lining the road that promise a quick cash advance so that you can stay financially afloat until your next pay day. How do payday loans work? Do they work? Read on to determine whether or not a payday loan is right for you.

Quick and Easy Approval

Payday loans, also known as cash advance loans or paycheck advances, are designed for individuals who find themselves in a bind. Perhaps an unexpected expense arose or a bill was larger than usual, and you need a small loan to hold you over until you get your next paycheck. This is the purpose of a payday loan.

You can obtain a payday loan at any of the numerous small franchise offices that you see, or you can look online. Eligibility for payday loans is not based on credit checks and cosigners are not needed, so payday loans are very attractive options for borrowers who have poor credit.

In addition, this situation cuts down drastically on processing time and borrowers can get their money very quickly when time is of the essence. In fact, it oftentimes takes less than one hour for you to be approved for your payday loan and to have your cash in hand.

The eligibility requirements are quite simple. Generally, it will be required that you have an active checking account from which money can be withdrawn. You also will need some type of income for which you receive paychecks, and you probably will have to prove this by providing a pay stub or bank statement for verification.

Along with providing the necessary documentation, you will need to fill out an application and cut a check to the payday loan operators.


The Cost of Convenience

The check that you provide will be post-dated to the date at the end of your loan period, which usually lasts between two to four weeks. The amount of your check will be the full amount of your loan plus all applicable fees, known as the “finance charge”.

Finance charges are extremely high – they have to be, as these fees are what keep payday loan companies in business. Fees may be based on a percentage of the total loan (about 15%), but more often are based on a fee per certain amount borrowed. For example, you may be charged $30 for every $100 that you borrow. Payday loans usually are between $100 and $1500.

Under the Truth in Lending Act, all lenders must provide you with the APR on your loan and all finance charges in writing. You might be taken aback to see that the APR on a payday loan can be over 250%!
After the lender has verified your information and has your check, you will be given your money. When your loan becomes due for repayment either your check will be cashed or money will be withdrawn from your account electronically.

The fees that you paid initially cover only a few short weeks of your loan, so you will have to roll your loan into a new loan if you are unable to afford repayment when the time comes. Of course, this means fees added all over again.

Needless to say, getting into this pattern can make your “small” loan very, very expensive and very, very quickly. In fact, most borrowers in this situation end up using most of their loans just to pay back lenders’ fees!


Alternate Options

There are advantages to payday loans that are not seen with other loans. No other loan can be obtained as quickly or as easily. If you are in an emergency situation that requires money immediately, then a payday loan might be your only option. They also can be useful for individuals with bad credit because no credit checks are required to determine eligibility.

However, you only should use payday loan services if you truly have no other options, and if you are absolutely positive that you will be able to repay your loan and all fees within the initial loan period. Most people who obtain payday loans cannot afford them come their next pay period, which can make an already difficult financial situation much worse.

If you are in a bind and need a small amount of money to bridge the gap between paychecks, then consider asking a friend or family member for a loan.

You also might think about obtaining a personal loan from a bank or credit union. An increasing amount of such loans are being offered without credit checks, though most probably will require cosigners.

If you have not had any look with other money sources, then check payday loan companies with the Better Business Bureau before deciding on your best option. Payday loans can work in theory, but in reality they often make situations worse for unsuspecting, unprepared borrowers.