If you're not already familiar with what a payday loan is, here's the short version. A payday loan is a type of unsecured, short term borrowing which is supposed to hold you over (in a sense) until your next payday-hence the name "payday loan". These loans will generally run anywhere from a couple hundred dollars up to a few thousands. This amount is dependent on the state in which you live and the institution providing the sum. For example, the most you could borrow in South Dakota is $500. Does that mean you'll automatically qualify for that much? Absolutely not. Your personal history also plays a role in the amount that you'll receive. If you don't have employment or are recently out of a job, it may be nearly impossible to receive one since lenders will ask you relevant questions regarding your income.
Now, bank payday loans are slightly different from independent lenders. Banks typically take a comprehensive look at your credit, income, and list of assets when deciding whether to issue you a loan. The high interest rates may still apply, since it's built into the very nature of a payday loan but you may be able to negotiate a more flexible repayment schedule, especially if you have an active account with them. Here's the big drawback to getting a bank payday loan.
If the bank has access to your checking account, they may draw the funds directly from it to repay the borrowed amount. This isn't a problem, if you have the money available. So basically, you have more control of the repayment when you take out a payday loan that's not directly with your bank.
If at all possible, it's recommended to explore your other options before resorting to a payday loan because of the exorbitant fees. If you're dead set on borrowing from your bank, consider their other loan options or even taking out a credit card especially for emergencies. Ask yourself these questions to get a better idea of your financial situation:
- How likely is it that I'll qualify for this loan based on my credit and income history?
- Remember, this answer will also depend on the state in which you reside. The full legal statutes can be found on this list.
- What is the bare minimum that I need?
- Realistically, when will I be able to repay the full or partial amount?
- Have I exhausted my other borrowing/credit options?
- What other loans am I responsible to repay?
All-in-all, if you're not careful about the terms you agree to when taking out a payday loan, you could find yourself in a world of trouble. Always remember to read the fine print including the applicable fees and interest rates. According to the Truth in Lending Act, institutions are required by law to disclose this type of information for the safety of consumers. Check out the full review to get the entire scoop on payday loan companies including the top five companies.