Payday loans are typically for small amounts of money, typically a few hundreds, to tide over some sudden crisis till their next pay check. The price of such loans is quite high running into one thousand percentage points or more of interest annually.
Nevertheless, these loans are very popular. You will find customers taking five to six such loans every year. People take these loans for many reasons. Like mentioned earlier, to tide over some sudden financial crisis, like an unexpected hospitalization bill, or college fees. These loans are also used to pay late fee charges on credit card bills or overdraft charges on their bank accounts. They are popular because the money is directed to your bank account almost the instant you apply for one. Previous credit history is not an issue, even if it is bad.
Paying back a payday loan
The loan does not have to be repaid in cash on the due date. You only have to ensure that there is sufficient amount in your bank account to cover the loan amount and the interest, which the lender will automatically withdraw from your account on the date of repayment.
Normally the money you were lent plus the interest amount should be paid within the month.
Some lenders allow you to choose the repayment schedule
Some lenders offer a continuous repayment option, whereby you give them the authority to make repeated attempts to take part or the full amount due from your bank account after the pay by date.
When does taking a payday loan make sense?
A payday loan makes sense if and only if you can repay it on the agreed date of repayment. They work out very expensive once they cross the date of repayment. Lenders might offer to rollover the loan till the next month and more, but this is just a sales ploy and an attempt to get you to pay more than is necessary. A good creditor would freeze charges and interest to not more than two months from the date of last payment. And you would best stick to that.
How to choose a payday lender
· Check among different lenders for the best interest rate.
· Don’t go for lenders who offer deferrals
· Don’t take multiple loans at a time. Don’t take one to repay another.
· Check if the lender is registered with a trade body because trade bodies have charters which hold their members to stringent rules. One of the points of these charters is that they will deal with cases of financial difficulty with sympathy and positively
· You should consider the terms and conditions of the loan. Usually payday loans have to be repaid between a time period of 15 days to 90 days. So choose that payday loan company, whose loan repayment period is comfortable to you. So it is best option to compare the terms and conditions of different pay day loan companies and choose the one whose terms are most favorable to you.
Debt collection beyond extended payday date
In such a scenario, the lender can approach a debt collection agency to collect the debt on his behalf.
A research report shows that millennials, those born after 1982 are more likely to have availed of payday loans because of their poor credit records. The high cost of the payday loans contributes to their poor credit records, so it seems to be a catch-22 situation! Cheaper forms of finance are thus not within their reach, because those institutions check the credit record of their customers before disbursing the loan. The relative ease with which a payday loan can be secured makes it appealing to the millennials.