A payday loan is a short-term, high-interest form of lending that acts as a cash advance to cover borrowers until their next paycheck arrives, hence the term “payday.” These loans are also limited in size, as the maximum amount that you can typically borrow from a payday loan is $5,000.
They are also designed to be quick and fairly easy to qualify for, as most payday lenders are willing to lend money to borrowers with bad credit as long as they have a steady source of income. And when it comes to applying for a payday loan, you can get payday loans online through a credit broker like CocoLoan.
Such online services usually have a wide network of payday lenders, which can save you a lot of time and effort compared to applying to several lenders individually. Plus, you will be able to instantly compare multiple loan offers to find the one that best fits your budget and requirements.
How Can I Secure A Payday Loan?
In order to successfully qualify for a payday loan, most online lenders will usually require you to be at least 18 years old, be a US citizen/permanent resident, have an active bank account, as well as have a steady income stream.
It is also for this reason that borrowers with bad credit are also eligible for funding. Sarah Ross, the co-founder of CocoLoan, went on to state that “anyone with bad credit can qualify for a payday loan, which ensures that borrowers still have a way to access money even when they are locked out of traditional lending avenues.”
Also, if you meet these eligibility requirements and are approved for a payday loan, you can typically expect to receive the money within the same day of approval through an instant bank transfer.
However, you should keep in mind that how much money you qualify for will usually depend on your income level and the lender in question. However, most states have their own laws that restrict the maximum amount that payday lenders can give out.
Furthermore, some states also restrict borrowers from being able to apply for multiple payday loans, in order to keep them from falling into bad debt after borrowing large amounts at exorbitantly high-interest rates.
What Are The Risks Of Payday Loans?
While payday loans are a convenient source of fast cash for those in need of urgent financial assistance until their next paycheck arrives, they also don’t come without risks.
#1. Exorbitantly high borrowing costs
Payday loans come with extremely high-interest rates, so they have the potential to severely derail your credit score and overall financial health.
However, the biggest risk of payday loans often lies in the fine print, as it can often end up including extra costs like early repayment charges or late repayment fees, which can dramatically increase how much you owe.
#2. High risk of default
Another huge downside of payday loans is that the combination of their high-interest rates and short repayment periods often makes them extremely difficult to repay. And when you fail to make your repayments on time, the late payment fees can often end up draining your finances dramatically.
#3. High rollover fees
If you fail to have a good plan to repay your payday loan in full on the agreed-upon date, you will most likely be forced to roll your loan over. This means that you will end up being responsible for the principal balance, accrued interest, as well as any extra fees.
If you’re not careful, you can easily find yourself trapped in a cycle of high-interest debt that can end up being very difficult to get out of.
What To Do If You Are Stuck In A Payday Loan Debt?
Getting out of a payday loan debt can be difficult, but not impossible. One way to get rid of it is to consolidate the payday loan with another low-interest debt.
For instance, you can secure an installment loan from a bank and use that to repay your payday loan debt. This will end up lowering your payment and saving you a significant amount of money on interest and fees.
Another option that you can try is to ask the lender to provide you with an extended repayment plan that spreads out your payday loan payments over several months. This can help to make managing your payments easier rather than having to scramble around to pay off your debt within a shorter period.
Alternatively, you can always try to borrow money from friends or family members as a last resort. This can allow you to effectively eliminate the debt and also reduce the need to deal with more fees down the road.
However, it is important that you ensure that you are both in complete agreement about the repayment terms to avoid damaging your relationship.
What Payday Loan Alternatives Are There?
While payday loans are not a bad option if you are in need of cash in a hurry, it is still a good idea to consider other financial alternatives before applying for one. However, the first thing you should always do is review your financial situation and see if it is possible for you to free up some funds.
For instance, you can assess your current budget to see if there are any expenses that can be temporarily pushed aside. This can provide you with the extra cash that you need to deal with any financial emergency, at least until your next payday arrives.
If it becomes clear that it isn’t a viable solution, then here are a few options that you can try out:
#1. Personal loans.
While most lenders will only approve your personal loan application if you have at least fair or good credit, there are still a few lenders out there that can provide you with the money you need.
For instance, credit unions are often willing to fund borrowers with poor or subprime credit ratings. You can also find bad credit lenders using online services like CocoLoan, which also make it easy to find and compare different loan offers instantly.
#2. Credit cards.
If you have a credit card, you can also use it to make a payment since their APRs tend to be significantly lower compared to payday loans.
Also, given that most credit cards typically offer cash advances, this means that you can instantly withdraw the money you need from an ATM. And while they do come with high APRs and extra fees, this option is still a cheaper alternative to payday loans.
#3. Friends and family.
If you don’t need to borrow a significant sum of money, then you can consider asking your friends or family for a small loan until you are in a more favorable position financially. The benefit of this option is that you will usually have more flexibility to repay your loan, and most of the time, you won’t even have to pay any extra interest on top.
However, you should ensure that both parties are in complete agreement with regard to the loan’s terms and conditions. This is important, as it will help you to avoid any misunderstandings that could potentially compromise your relationship.
Whether you love or hate payday loans, the fact of the matter is that they can be very helpful. However, it is important that you always exercise caution, especially when it comes to choosing a payday lender.
After all, there are predatory lenders out there, which is why it often pays to use a credit broker service like CocoLoan. They often vet the lenders they work with, so this will ensure that whoever you are partnered with is a legitimate and trustworthy loan provider.