What Is A Payday Loan? 

Many people often find themselves having a difficult time stretching their paychecks to cover all of their monthly expenses. And while it is extremely important to always have a budget to help you cover your daily expenses, it can often take quite some time to build up your savings. 

This can be especially problematic if an unexpected emergency like an urgent car repair or medical bill pops up, which is when knowing how to get a payday loan online can often come in handy.

These types of loans are essentially a short-term form of lending that provides borrowers with a small cash injection to cover them in between pay periods. They are usually meant to be repaid in full by the time your next paycheck arrives, hence the term “payday loan.”

However, while these loans sound like a great idea in theory, the problem is that, unlike traditional loans, this form of borrowing tends to come with very high fees that can often be difficult to repay. On average, they usually come with a flat fee that is usually $15 for every $100 borrowed, but this amount can even go as high as $30.

It will often vary depending on the laws of your respective state and the payday lender in question. Despite this, it can be said that the benefit of having fast access to cash can sometimes outweigh the cost of having to deal with the high fees. 

“Most consumers still find payday loans a viable option because they come with less stringent eligibility criteria than most traditional loans. This makes it easier for those with bad credit to secure urgent funding when they need it most,” says Sarah Ross, co-founder of CocoLoan, an online credit broker.

How Can I Obtain A Payday Loan?

It is important to keep in mind that payday loans are primarily meant for dealing with day-to-day expenses like bills and groceries. After all, their high fees effectively make them unsuited for unnecessary purchases that you can hold off on. 

As such, they should only ever be considered as a last-resort option when you have eliminated all other alternative payment options. When it comes to applying for a payday loan, this can usually be done through a storefront payday lender. 

However, the easiest way is to apply online through a credit broker like CocoLoan, as the process is often fairly simple and straightforward. All you need is to fill out an online pre-approval form by providing your personal and financial information, like your bank account number, credit rating, etc. 

You will also need to show proof of income, usually pay stubs from your employer, as this is what the payday lender will use to determine your ability to repay the loan. Sometimes, you may also need to provide the lender with authorization to automatically withdraw the funds from your bank account on the loan’s repayment date. 

However, you should always remember that payday lenders often take on a lot of risks since most of them don’t discriminate against borrowers with bad credit histories. As such, they end up charging exorbitantly high fees if you fail to make your loan repayments on time. 

This can often be problematic for browsers, as it means that you could find yourself in even more significant debt simply by missing a payment.

Can Payday Loans Impact Your Credit Score?

Most payday lenders usually carry out soft credit checks to verify your financial information, so applying for a payday loan doesn’t usually impact your credit score. And even if you make your repayments on time, most of these lenders do not typically report this to the relevant credit bureaus.

However, if you fail to make your repayments and you end up being long overdue, then there is a high chance that the lender will get a collection agency involved to recover the money owed. And when this happens, you will usually end up getting a delinquent mark on your credit report.

What Are The Pros And Cons Of Payday Loans?

Before you consider taking out a payday loan, it is important that you take the time to weigh out all the potential pros and cons associated with these loans.

Pro: They come with less stringent eligibility requirements. For those with a less-than-stellar credit rating, a payday loan can often be a great option to consider. Most lenders are usually less interested in your credit score, as they simply want to know if you can afford to make your repayments on time. 

In fact, you will usually only need to verify that you are 18 or older, are a U.S. resident, have a steady source of income, and have an active bank account to successfully qualify.

Pro: The application process is fast and easy. If you find yourself in need of quick funding to deal with an emergency, applying for a payday loan can be convenient, as these loans are relatively easy to access. Most of the loan process is handled online, and if approved, the funds are typically deposited into your bank account within 24 hours.

Con: They have steep interest rates and fees. If you are not fully confident in your ability to repay the loan on time, these loans can turn into unmanageable debt. In most cases, the amount owed will usually end up compounding if you miss the first repayment. 

And considering the fact that most of the people who borrow these loans are living paycheck to paycheck, they can be financially damaging if you are not careful.

Con: They can’t help you build credit. Most payday lenders do not report any information about repayments to the relevant credit bureaus, so you will not be able to boost your credit score with these loans. However, they can damage your credit rating if you fail to make your repayments on time, so keep that in mind.

Can A Payday Loan Be Forgiven?

It is very rare that a payday loan debt will end up being written off because the amount of interest that most of these lenders charge allows them to make huge profits. In most cases, if you fail to make your repayments, the debt will usually be handed over to a collection agency, which will end up pursuing you for the money and interest owed. 

This can be a rather unpleasant experience that can not only raise your debt amount but also damage your credit as well. As such, it is important that you avoid taking out a payday loan unless you are 100% confident that you can pay it off in full when the repayment date arrives.

Bottom Line

All in all, payday loans can be a great way to deal with unexpected emergencies, as they don’t require you to put up any collateral and can also be processed within 24 hours. Plus, they don’t require you to have a good credit score to secure approval.

However, the high fees and interest rates that typically come with these loans can often put you at risk of bad debt. As such, you should always remain very cautious about them, as well as about who you borrow the payday loan from. 

After all, there are a number of predatory lenders out there, which is why it is often best to rely on a credit broker like CocoLoan. These services will ensure that you only partner with legitimate payday lenders that are both honest and reliable.

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