Payday loans are sometimes more difficult to pay back than a traditional loan, as the lender did not assess your ability to repay before giving you the money. Payday lenders usually do not evaluate your debt-to-income ratio or take into account your other debts before granting you a loan.
Payday loanscome with high interest rates and fees that often make it very hard to pay them back. If you are unable to pay off a payday loan, the account may be sent to a collection agency, which can damage your credit. The payday lender has your check.
You can collect it on the due date of the payment. If you do not have enough money in your account, your check will be returned. Your bank and payday lender will both charge you a fee. Even if a creditor has not taken legal action against you, if your income is exempt, you should be aware of the possibility of a payday lender seizing it. If the payday lender has your checks or authorization to access your account, you do not need to sue them in order to get paid.
To qualify for a payday loan, you usually need an active bank account, ID, and proof of income, such as a paystub. If you need quick money to pay bills, payday loans may seem like an easy solution. This loan is usually offered by a bank, credit union, or online personal loan lender, and they will typically require proof that you can eventually repay the loan. Payday loans are almost always more expensive than personal loans when it comes to borrowing money, and they are also riskier. Generally speaking, when collecting or attempting to collect a payday loan, the lender cannot harass or intimidate you.
Payday loans are typically used to borrow small amounts of money until your next paycheck and are very easy to obtain. Payday lenders target financially challenged customers who do not qualify for credit cards or have very low credit limits, mainly due to past financial issues. Payday loans only require proof of identification, income and a bank account and are often given to people with bad or nonexistent credit. When compared with the 15%-30% APR on credit cards or the 10%-25% rate for a personal loan from a bank or credit union, it is hard to understand why anyone would choose this option. For example, you can apply for a personal loan or 401 (k) loan to pay off your payday loan debt and repay it in fixed monthly payments. Many states have laws that limit the amount of fees or interest rates payday lenders can charge.
According to the Pew Charitable Trust study, 75% of Americans favor greater regulation of payday loans. Payday loans can have extremely high interest rates and charges that could add up to an APR of around 400%. Payday lenders generally do not assess your debt-to-income ratio or factor in your other debts before granting you a loan.