Payday loans: what are they and how do they work?
If you are interested in a short-term loan solution, perhaps even for a small amount of money, then you might find it worth looking into payday loans. Like any other loan product, a payday loan involves borrowing money from a business and paying it back with interest.
But these loans work a little differently than other loan products. These loans are designed to be:
- Arranged and Approved Briefly
- Used when you only need to borrow smaller
- Used to borrow for shorter
These loans are generally used for short-term bridge financing. A standard loan, such as a secured home loan or an unsecured loan, can take weeks to arrange and may come with a higher loan limit than you might need. These types of loans tend to be designed to allow people to borrow more money over the years.
Payday loans, however, work more on the cash advance principle. You may, for example, need a few $100 to tide you over until you get paid. You may be short on cash and have an unexpected bill to pay, or you may need quick access to cash right away.
These loans get their name from the fact that they give you a cash advance until you get paid. Used correctly, they are intended to give you almost immediate access to a small loan for a few days or a few weeks. Typically, when you take out a payday loan, your repayment term is set for your next payday.
So, if you take out this type of financing, you will generally find that:
- You can borrow a small amount with just a quick loan
- Your loan application can be processed and paid to you remarkably quickly (i.e., sometimes within 2 hours).
- You pay off the loan later, so you don’t have long-term debt to weigh you down.
It can be essential to think about how these loans are supposed to work before applying. It can be a great way to get a quick and easy cash injection when you need it. But, if you don’t pay it back when you’re supposed to, interest charges can be a problem.
Because of how payday loans work, their fees can be much higher than standard loan fees. However, this may not be a problem if used correctly. Paying off what you borrow on time and not rolling over your debt or continuing to borrow can make this a viable loan solution for you.
How do instant payday loans work?
If you’ve taken out a standard loan before, you might already know that it can be a long and tedious process. You may have to wait weeks to find out if a lender is willing to let you borrow, and it may take years to pay off what you owe. Instant payday loans, however, are designed to be very different.
This is not a review of regular loans. They’re just designed to work differently. Payday loans are based on an alternative system of cash advances and can work very well on completely opposite principles to other loans. For example, they can:
- Grant you a loan for a small amount of
- Enable you to get the money you need virtually
- Don’t put you through endless credit checks and approvals
- Get paid back in weeks (or even days) with a fixed amount of interest added on your next payment
Let’s be honest now. You may have learned that payday loans have high interest rates (here CreditNinja’s take on interest-free loans). This is perhaps not so surprising considering the benefits they can bring to you. They can sometimes cost more, but you usually won’t suffer if you manage your loan properly. By repaying what you borrow when it comes due, you are simply paying a fixed amount in addition to your loan amount.
Failing to repay like you’re supposed to, however, may be when this type of solution costs more. But, if you use Instant Payday Loans in the right way, that may never be a problem. For many, the advantages of this type of short-term cash advance far outweigh the disadvantages.
You may not have to go through a lengthy credit approval process for this type of loan, but you may need to check some boxes before you can apply. The criteria established by a payday loan company may vary, but generally you may need to:
- Work full time.
- Earn more than a minimum amount each
- Have a bank account with a debit
Instant payday loans may well be a quick and easy loan solution for those who only need a small loan for a short period of time. These loans can be an alternative to consider if you ever find yourself in this situation.
Why do people use a payday loan?
Needing to borrow money isn’t always about borrowing a big to lend for a long time. Sometimes you may need a smaller loan just to get you through a few weeks or even days. This is where a payday loan can come in handy.
There are many different reasons why consumers choose to use a short-term loan over the more complicated or longer-term standard loans. For example, you may need to borrow a smaller amount for a shorter period because you:
- Bring in an unexpected bill
- You have to pay for something you didn’t do
- Having a busy month of expenses and needing a little extra cash to tide you over
- Find a good deal that you need money for immediately to buy it, but you don’t have spare money until you get it next time
A payday loan is unlike other types of loans in many ways. This type of loan is more designed to help you:
- Borrow smaller sums (i.e. hundreds rather than thousands of pounds).
- Get a loan in 24 hours or
- Bypass standard loan approval and waiting procedures
- Borrow money that you can then pay back the next time you get
This type of loan is suitable for many people who need to borrow money, but find that their loan needs do not match traditional lending methods. Say, for example, you see a discounted vacation deal that’s only available for a few days. If you do not get a deposit by then, the offer will be closed.
You may not have the money available now. You may be a few weeks away from your next payday when you will have access to the deposit money. But you might not be able to get a bank to lend you the small amount you need, and they doubt they’ll approve a loan on time anyway.
A payday loan may be an alternative to consider. It could give you the money you need in a day. All you have to do then is pay back what you borrow plus the interest charges charged, and you’ll be sorted.