Have you ever found yourself with bills piling up and no way to cover them? If so, you may have considered taking out a payday loan to help you make it to your next paycheck. In recent years, the rise of online lending has made it easier than ever to apply for and receive the money you need, even with bad credit. But how do payday loans work online? And what are their potential risks and benefits? These are the questions we’re going to answer below.
What Are Payday Loans?
Payday loans are short-term loans that are designed to help individuals make it to their next paycheck. These loans are typically small in size. Payday loan amounts commonly range from $100 to $1,000. The repayment is typically made in 2 to 4 weeks.
While traditional financial institutions typically require hard credit checks and extensive documentation, payday lenders often offer loans with minimal requirements. That is why they are popular options for individuals with poor credit or limited financial resources.
How Do Online Payday Loans Work?
Online payday loans work just like regular loans. The key difference lies in their digitalized application and funding processes. Instead of visiting a physical branch and filling out complicated paperwork, you can apply completely online and get the funds via direct deposit to your bank account.
Payday borrowers can benefit from getting a loan online as they don’t need to spend money and time visiting a lender’s store. To repay payday loans, make sure to replenish your bank account with the right amount on the due date. The lender will deduct the loan cost automatically.
How Much Money Can I Get from an Online Payday Lender?
Payday loan amounts are usually limited to $1,000. The average amount that payday loan borrowers got in 2021 was nearly $375. However, you can easily borrow $800 even with bad credit if it’s not restricted by your state law regulation. Remember that each state has its own caps. Thus, an $800 cash loan can be beyond them in some areas. Additionally, some states don’t permit payday lending at all.
Your income will also play a determining role when it comes to a loan amount. Before you get approved, payday lenders will check your earnings to make sure you can repay the borrowed amount. The higher your income, the more you can get, provided that you meet other eligibility requirements.
Are Payday Loans Secured or Unsecured?
A typical payday loan is an unsecured form of borrowing. Lenders don’t oblige you to provide any form of collateral to receive cash. But keep in mind that lenders typically ask you to provide access to your account balance. This way, they can automatically withdraw a loan cost from a borrower’s bank account. In case of default, they can also send a borrower’s account to a collection agency.
Can I Build Credit with the Help of an Online Payday Loan?
No hard credit check is performed when you apply for an online payday loan. This means that lenders review your personal and financial details through alternative means, not credit reporting bureaus. This form of verification makes the process lightning-fast and doesn’t result in a credit score drop. However, it also has no positive impact on your credit rating.
Thus, online payday loans are not a solution for those who want to build credit. Moreover, they can even ruin your credit history if you don’t repay the money on time.
What Is an Online Payday Loan Cost?
Payday loan interest rates are considered higher than average. While personal loans typically come with an APR between 6% and 36%, payday loan rates can be over 400%. However, payday loans are short-term debts, while an APR demonstrates the percentage you’ll have to pay for the whole year of using a loan.
Generally, payday lenders charge flat fees for their services. You can expect to pay an extra $10 to $30 for each $100 borrowed. As you can see, the amount is not that scary, although an APR is high.
How Can I Get a Payday Loan Online?
You can get a payday loan online by following a few simple steps:
- Decide on a lender. Compare offers, check out interest rates, repayment terms, and other conditions, and pick an offer that suits you most. You can also use a connecting service to speed up the process.
- Apply online. Complete an online application form on a lender’s website. Make sure to provide accurate and fair information.
- Receive a response. Payday lenders typically answer within one hour or less. You will get an email with a loan decision.
- Sign your loan documents. If approved, accept a loan offer by e-signing your loan agreement.
- Get the funds. Access the money in your checking account as soon as the next business day.
How Can You Use a Payday Loan?
In most cases, there are no limitations. You can use a loan amount to cover any personal needs you have. Most people obtain payday loans when they face unexpected expenses, such as unplanned bills or car breakdowns. Experts usually recommend using payday loans only as a last resort due to their high cost and potential risk of getting into a debt cycle.
What Are Payday Loans’ Legal Status?
The legal status of payday loans varies depending on the state. In most of them, payday loans are legal. However, some states have imposed limits on the maximum amount and the interest that lenders can charge. Additionally, paycheck loans are prohibited in 15 states and the District of Columbia.
Are Online Payday Loans Safe Loans?
Online payday loans can be a safe way to borrow money if you take the necessary precautions and do your research before taking one out. Payday borrowers are under the protection of federal and state laws. However, it works only when you deal with a legitimate lender. Thus, it’s essential to choose a reputable lender with a proven track record.
You also need to ensure that a lender uses modern encryption services that prevent data theft. Additionally, read the loan agreement carefully before signing it to protect yourself from unpleasant surprises. Finally, make sure you can repay the money on schedule before going into payday loan debt.
Payday Loan Alternatives
Here are a few more options to consider before you decide to get a payday loan:
Get a Credit Card Cash Advance
If you have a credit card, you can borrow against your credit card balance within the set limit. Just withdraw money from your card in a bank store or ATM. But keep in mind that a cash advance has no grace period. Interests accrue right away and accumulate quickly.
Ask Your Employer for a Paycheck Advance
Some companies offer paycheck advances to support employees in difficult financial situations, These are interest-free options. The amount you receive upfront will be deducted from your next paycheck.
Consider Payday Alternative Loans
Credit unions may offer short-term financial products that are considered reasonable alternatives to paycheck loans. If you’re a credit union member, contact it and ask about available options.
Borrow from Your Family
Borrowing from your loved ones can help you save money on interest and get relaxed loan stipulations. However, you need to keep track of repayment terms and don’t break deadlines. Otherwise, it can affect your relationship.
