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$500 borrowed for 5 months. Total amount repayable is $999.85 in 5 monthly installments of $198.37. interest charged is $491.85, Interest rate 236.1% pa (variable). Representative 481.6% APR.
Payday Cash Advance- Understanding What They Are
Payday loans are classified as short-term funding where collateral is not required. This loan is also associated with such terms as salary loan, payday advance loan, small-dollar loan, or cash advance loan. Lending approval is based on the fact that a borrower is employed and he will also need to show his payroll records as proof.
Once the loan is approved, the money will be deposited by the lender to your account within hours. Others could take as long as 72 hours for the loan process to get completed. Regardless of the turnaround time, payday advance loans are considered as some of these days most suitable and accessible debt instruments.
A Timely Solution
Payday loans can be quite handy especially when you hit a financial snag. When there is an urgent need for you to access some funds and your payday is still several days or so away, a payday loan is one option you can consider. The level of convenience that these loans afford will allow you to meet sudden expenses. Moreover, the money can also be used to avoid penalties o fees from your bank as well as cover your bills and other expenses.
It is easy to apply for a cash advance too since you can easily do it from the comforts of your home. A few minutes is all it will usually take and the money can be released to you on the next business day. There are even lenders that can have your funds deposited into your account in just a few hours from approval.
Convenience of quick approval
One of the top advantages of online loans is that the local application and authorization tend to be quick. The same is true for cash disbursement too. When you apply for loans online, all you have to do is browse the web for possible lenders. Unlike lending companies operating in a brick and mortar setting, virtual providers are easier to find and they make rates comparisons more convenient to do too. There is also the added advantage of being able to apply for these loans wherever you are- from your workplace or your home. Of course, there are requirements that you are expected to comply with before you can take advantage of this online credit facility.
Most lenders would require you to be employed for no less than three months with your current company. They would also require you to have $800 minimum take-home pay, and that you must have a valid checking account. One primary requirement for payday lending is that you are earning a salary. A bank account is also necessary so you can draw a check in favor of your lender. It may not be possible for you to access a payday advance loan if you are unable to meet these two basic requirements. Some may think that this loan only seems to favor salaried borrowers however, it is necessary considering the nature of the debt.
Unlike other credit forms where collateral is required, a payday advance loan doesn’t. The only assurance the lender needs that you’ll pay is your next payday. Note that your salary isn’t the only factor that will be put under the lens. The lender will also assess whether what you’re earning is enough to let you pay back what you’ll borrow.
Expect the payday lender to ask for a copy of your most recent pay stubs, along with your bank statement. Unlike other lenders, they will not require a report from the credit bureaus. However, they do partner with providers of consumer information service to verify customer information including your bank status, credit card payments, non-sufficient charges and instances, as well as any outstanding loans.
To ensure that your request will be approved, be truthful in answering all their questions. You are also advised against applying for other loans while you are in the process of getting approved for one.
Bad Credit History
It is natural to worry about your credit score. After all, it might cause you to not get access to quick funds during emergencies. However, this isn’t something you’ll have to worry about with payday advance loans as they easily fill the gap for borrowers who would have gone to loan sharks and endured their exorbitant charges, fees, and penalties. Unlike banks that will need you to justify the reasons why you are borrowing money, payday lenders will not ask you to justify getting a payday loan.
Under the Consumer Financial Protection Bureau, no piece of legislation makes it necessary for you to have to explain why you are borrowing money. You have the choice to spend the funds for anything – from your wedding to a vacation. If you are unable to pay the money you borrowed back on time, you have the choice to roll it over to the next month.
Understanding Loan Costs
Despite the numerous benefits that payday loans offer, it is also a reality that the borrowing costs are high. You will be charged a lender’s fee. The lenders will need to make a profit, after all, and this exactly why they are in the money-lending business.
Lending fee calculation is usually in the form of an APR or annual percentage rate. It measures the borrowing costs and is applied annually. It is also a percentage of the amount you are borrowing. A hypothetical calculation should help you better understand how APR works.
Simplifying APR calculation
If you borrowed $400 through a payday loan with a lender fee of $50 and a payment term of 14 days, computing the APR would mean dividing the fee by the amount being advanced. Multiply the result by 365 and then divide the answer by the term, which is 14 days. Take the result of the computation and then divide it further by 100.
You get a yield of 0.125 when dividing 50 by 400
0.125 multiplied by 365 days is 45.625
When you divide 45.625 by 14, you get 3.2589
Further multiplying 3.2589 by 100 and you get an APR of 325.89%
Protection for consumers
Payday borrowing has a tendency to entangle borrowers in a vicious debt cycle if not handled properly. Avoid getting unreasonably-charged loans by only referring to lenders that the department of Business Oversight has granted a license. Unlicensed lenders are often known to charge costly fees. Besides, you’ll have little to no legal reprieve if there are future complaints. State laws place limit son loanable amounts and fees that lenders can legally charge, thereby protecting consumers in the process. In addition, the DBO also requires lenders to keep their clients informed upfront about the loan they wish to avail of.
California borrowers’ protection
In California, borrowers can only borrow no more than $300 and the fee should be no more than 15%. Lenders are also obliged to tell you exactly how much the APR is. Also, a California payday loan is not allowed to go beyond 31 days.
If you are not able to pay the loan back on time, you may secure an extension with no added cost. If your bank does not honor a check that you have issued, lenders can only charge you no more than $15. California lenders are prohibited to accept collateral for payday loans. In addition, they should never coerce consumers into buying other financial products just so your loan application could be grant approval.
Borrowers’ protection outside California
Another protection body that looks after the protection of consumers is the Community Financial Services Association of America. They represent lender members that are drawn from more than 30 states in America. They collectively serve more than 19 million households offering credit facilities and a wide range of other financial services.
Payday advance is a fast and convenient way to secure funds before your next payday. Lenders will require proof of employment as well as banking details. You can apply for the loan despite a bad credit record. Payday loan debts do tend to get associated with high costs but you have a right to know exactly what the lender is charging. Consumer bodies are in place to ensure that your rights and interests are duly protected.
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