Payday loans are sometimes harder to repay than a traditional loan, because the lender didn't verify your ability to repay before lending you money. Payday lenders generally don't assess your debt-to-income ratio or take into account your other debts before granting you a loan. Payday loans come with exorbitant interest rates and fees that often make it very difficult to repay them. If you can't repay a payday loan, the account may be sent to a collection agency, damaging your credit.
The payday lender has your check. You can collect it on the due date of the payment. If you don't have enough in your account, your check will be returned. Your bank and payday lender will charge you a fee.
Even if a creditor hasn't sued you, if your income is exempt, you should be alert to prevent a payday lender from seizing them. If the payday lender has your checks or authorization to access your account, you don't have to sue it 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 struggling money to pay bills, payday loans may seem like a convenient way to make ends meet.
This loan is usually offered by a bank, credit union, or online personal loan lender, and you will typically need to provide them with 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're also riskier. Usually, when collecting or trying to collect a payday loan, the lender cannot harass or intimidate you. Payday loans are generally used to borrow small amounts of money until your next paycheck and are very easy to process.
Payday lenders target financially challenged customers who don't qualify for credit cards or have very low credit limits, mainly due to past financial problems. Payday loans only require proof of identification, income and a bank account and are often given to people who have bad or non-existent credit. Compare the 15%-30% APR on credit cards or the 10%-25% rate for a personal loan from a bank or credit union and it's hard to understand why anyone would choose this path. 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, on the other hand, can have extremely high interest rates and charges that could add up to an APR of around 400%. Payday lenders generally don't assess your debt-to-income ratio or factor in your other debts before granting you a loan.