Here’s An Easy Explanation of How Payday Loan Works

09 May

Payday loans are typically small amounts of borrowed money to tide over some sudden crisis till their next paycheck. This kind of loan is very popular because the price of such loans is quite high running into one thousand percentage points or more of interest annually.

Nowadays, 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 unexpected emergency expenses, or educational 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.

A payday 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 and 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.

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 roll over 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.

And to choose the perfect lender for your needs, you can check among different lenders for the best interest rate. Check if the lender is registered with a trade body because trade bodies have charters which hold their members to stringent rules. You should also consider the terms and conditions of the loan. Usually, payday loans have to be repaid over 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 payday loan companies and choose the one whose terms are most favourable to you.