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5 Unknown Facts About Payday Loans As The Reasons To Take Them Out

5 unknown facts about payday loans

People try once again not to get involved in payday loans, considering them unprofitable. However, there are 5 facts about payday loans that few people know about. These facts will change the opinion of most people about such a quick lending option.

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Fact#1. The rate is not always high

Previously, the interest rate on payday loans was not controlled by a low at all. A payday lenders could issue loans, for example, at 2.5% per day. If a person took out a loan of $500 for a month at this rate, then in the end he had to repay $875. And that’s quite a lot.

Now the law prohibits payday lenders from setting a rate above 1-2% per day. Moreover, in the terms of competition, credit organizations began to offer more and more favorable terms. Today it is quite realistic to find a payday loan at a rate lower than 1,5% per day or less. There are even proposals for which borrowers are allowed not to pay interest at all if they manage to repay the entire debt in due time from the date of loan receipt. Therefore, today a payday loan does not put so much pressure on the budget.

Fact#2. A payday loan is not necessarily a short–term loan

Many people believe that a payday loan is issued for 30 days. In fact, this is a standard term. Although today there are longer loan terms, up to 6 months. Such a lending option will be an installment loan.

Even if the lender issues loans only for 1 month, it is usually offered a prolongation option, i.e. extension of the loan term. Prolongation implies that the borrower repays the interest accrued for the month. Then an extension for another month is possible.

Important: prolongation leads to a greater overpayment, because the borrower first extinguishes the interest, and then they are charged again, since the body of the loan has not disappeared.

The shorter the term and the rate, the lower the overpayment rate will be. Therefore, a payday loan should be issued when the borrower is sure that he will soon be able to repay the entire debt.

Fact#3. There is a limit to the maximum overpayment

Since the beginning of 2020, microfinance organizations cannot charge more than 50% of the initial loan amount as interest penalties. Simply put, if the borrower took out $300 at any rate, then interest cannot be constantly accrued.

When the total debt reaches $450, then all charges will stop. There are no more situations when a person took out a payday loan in the amount of conditional $500, and after a few months it turned out that the debt had already exceeded a thousand dollars.

Fact#4. The loan can be issued via the Internet

Today payday lenders issue loans online. It is enough to find the website of the reliable payday lending service, study the terms, register and submit an application, choose the amount and loan term. Consideration of the application is instant and almost always around the clock. Even at night there is an opportunity to get a short-term loan. After receiving preliminary approval, you will need to provide personal data (passport and bank card information). If the application is finally approved, the funds will be credited to the specified card account as soon as possible.

Important: when choosing a lender, you need to be extremely careful not to get caught by scammers. It is absolutely necessary to make sure that the site belongs to a real and reliable microfinance organization.

Fact#5. A payday loan is approved with a bad credit history

A spoiled credit history does not play a special role for online payday lenders. They are ready to give a bad credit loan to almost 90% of clients. That is why small loans are used by people who are already denied loans by banks.

Moreover, reputable micro-credit organizations that value their reputation and are listed in the official register themselves submit information to the Credit Bureaus. If a person takes out such loans and successfully repays them, then this will have a positive effect on his credit history.

Conclusion

In some cases, a payday loan remains the last resort for a person to get a quick loan. The bank has a minimum loan amount. Simply put, if a person urgently needed $100 to buy groceries, then you will not go to the bank for such an amount. But you can get a small loan, and then quickly repay it when the money appears. In this case, if you also find an MFI with a low interest rate, there will not be a particularly large overpayment. We hope these facts may be the very reason to issue a payday loan if you have a demand in extra cash.