| Have you ever wondered how a payday loan company works? How do they ensure that you will pay them back? Where do they make their profit? Is a payday loan a serious loan? Do they require collateral? For many, the payday loan is a confusing thing. But, one of the most important things that anyone who uses a payday loan must know is how they will pay the company back the money that is borrowed. If you are worried about how this will happen, you will find your answers here. |
| A payday loan is an amount of money that is borrowed against future earnings. If you need money today and do not get paid until next week, you will be able to get a cash advance against your next paycheck. But, the question is, how will you have to pay that money back. And, can you afford to? |
| Payday loans are generally targeted at lower income families who simply need help financially. Yes, they provide a good service, but they can also hurt in the long run. More on that topic later. In order to repay your payday loan, you will need to commit to paying the money back, out of your next check. In other words, you will not have the full amount of your check available to you any longer. And, there are fees that will also come out of the payday loan as well. If you borrow $500, you may receive $450 and the other $50 is a fee to be paid to the payday loan company. The fee amounts vary from company to company. |
| But, back to how you will pay your loan back to the lender. You will find that it is often one of two ways that you will need to pay the money back. Some companies will verify that you have an active checking account. That is because they will have you write a check against your account that they will hold and cash on the agreed upon day. Or, the other option is that you will authorize a one time automatic withdrawal from your bank account. In either case, the payday loan company will cash the check or make the transfer on the agreed upon day. In other words, that is the day you will need to have the funds to pay back your loan!
What happens if you can’t pay the money back on time? This is where payday loan companies make a lot of extra money. For example, if you could not pay back your $500 loan on the agreed upon day, most payday loan companies would roll it over for you. Sure, you can have another two weeks, but you’ll need to pay that fee again. So, you will have more time, but you will end up paying the money back and a lot more. Sounds harsh? That is the way with payday loan companies work. If used wisely and prudently, they can help your through a crisis; used with bad judgment, you can end up spending money you do not have.
As for collateral, unlike a bank, most payday loan companies do not require you to own a car or a home. Instead, they are more concerned about whether or not you have a job. In most cases, they are looking for you to have a steady flow of income. If your paycheck varies, this will be a consideration. If you have only had your job for a short period of time, this also may be a reason they will not give you a payday loan. The standards for each payday loan company are different. You will need to ask specific questions in order to find out what they will require of you.
Lastly, to touch on how the payday loan can hurt you, we should mention that payday loans that are not paid in full and on time will often end up being rolled over again and again. The end result? You will end up paying a lot of money for a one time loan. The cycle just keeps going and you end up farther behind then you were to begin with. So, if you need to use a payday loan company, by all means do so! Just make sure that somehow you make up that money and you get it paid back. A quick payday loan should not turn into a long time struggle to pay your bills. It is up to you to ensure that you will have the money to pay your loan back on time.
To know the specifics about what collateral and what type of bank account that you will need, you should call the payday loan or cash advance company and ask. In most cases, they will provide you with an easy explanation. If you can meet their guidelines, more than likely you will be able to borrow from the payday loan company. |
