In the world of finance, quite a variety of loans are available. They include car loans, home equity loans, installment loans, personal loans, and payday loans. The type of loan that an individual obtains generally depends on circumstances in life including past and current employment status, existing assets, and past credit history.
What Are Payday Loans?
Payday loans are short-term loans for a small amount of money with a short repayment term.
They are designed for people who need cash quickly, don’t have the credit history to get it, and can’t afford to wait until payday for the money. In general, payday loans provide small amounts of cash ranging between $500 and $1,000. The interest rates are often high, and the repayment term is quite short. A variety of lenders provide payday loans. Many states have specific requirements in place that must be followed by any lender providing payday loans.
Where Does the Name “Payday Loans” Originate from?
With a payday loan, a small sum of money is advanced to the borrower with the promise to repay the amount in full with fees by the next payday. The individual who borrows the money must have employment in order to be able to get this type of loan.
Payday loans have a high interest rate in comparison to other legal bank loans. That’s because of the risk. Payday lenders offer unsecured loans up to $1000 to just about anyone, even those with bad credit scores, and even bankruptcy.
Why Does Someone Borrow Money through an Expensive Payday Loan?
In most cases, people borrow money through an expensive payday loan simply because they can’t get the money any other way. Usually, this is because they have a terrible credit rating and a poor credit history. A bad credit history develops over a long period of time during which the individual makes late payments, doesn’t pay the full amount due on a bill, or fails to make the payment at all. The may also have defaulted on previous loans, meaning that they failed to repay the debt.
An individual with bad credit may also have a sporadic employment history with long periods of no employment at all or periods of continually switching from one job to another. The lack of stability most likely affected their ability to keep up with their debt repayments. It is difficult, if not impossible, to obtain a personal loan when you have bad credit.
Who Are Payday Loans Really Made for?
Payday loans are a means to an end. They provide a small amount of cash quickly and without any fuss to individuals who can’t or prefer not to go through the traditional personal bank loan. Quite often, individuals who meet any of the following criteria apply for payday loans:
- Desperately need cash in order to pay for emergency medical or dental treatment
- Recently had an addition to the family such as a baby or older relative coming to live with them
- Have no credit or bad credit
- Have only been employed for 6 months
- Need to pay for an unexpected car repair