Payday loans are a financial product that can help people with no credit, or poor credit, handle money emergencies. This is thanks to their lower standards in regard to credit history combined with their higher focus on proof of employment.
While payday loans are great, they are meant to be a means of handling a short-term issue. They have higher interest rates, short repayment periods, and can cost a lot of money when used for long periods of time. To avoid falling into a cycle of applying for loans to pay other loans, remember this article's important information about responsible payday loan consumerism.
What Are the Credit Requirements for Payday Loans?
The credit requirements for payday loans will vary from lender to lender. Many financial service providers have very low credit standards. These companies, like GreenStarCash and similar lenders, only check credit reports to avoid customers with a history of defaulting on short term loans. They also check these reports because some states have a limit on the number of short term loans that a person can hold at once.
Outside of these two credit details, most payday lenders are more focused on your current job, bank account standing, and proof of your next payday.
Are Payday Loans Safe to Use?
Like any form of short-term loan, payday loans can be perfectly safe to use. However, it is up to the individual consumer to look at the loan's terms and repayment amount to determine if they are capable of repaying the loan without causing themself further financial hardship.
These short-term loans can be a great way to avoid repossessions, shut off utilities, and other forms of crisis by allowing consumers to essentially access the funds from their next payday, early. Still, lenders need to make money off their services, so the repayment amount will always be more than the lent amount.
When applying for a payday loan, be certain to use a reputable lender who abides by best lending practices. If you are offered a loan that doesn't work for you, you can reject the loan by not signing the agreement and accepting the funds.
If you believe your lender is not obeying state, federal, or local laws in regards to your loan, you may contact the federal trade commission to file a complaint.
Who Should Apply for a Payday Loan?
Anyone facing financial hardship can apply for payday loans, but they are especially useful for those with poor credit history. Typically, payday lenders are willing to overlook issues with a consumer's credit history so long as they have a steady income and an ungarnished bank account.
If your credit report is filled with currently outstanding loans, defaulted payments, repossessions, or other major issues, you may still be declined. These loans are unsecured, which means you do not provide collateral to the lender. While that makes the application process far easier, it offers one less way of counteracting major these types of credit issues.
If you have bad credit but need a payday loan, you shouldn't be dissuaded from applying. Payday lenders almost always run soft credit checks on their applicants. This means that your credit score is not affected by applying for a payday loan.
Still wondering if you should apply for a payday loan? Here are some examples of good and bad reasons to apply:
Appropriate Payday Loan Uses
- Emergency Medical Costs
- Vehicle or Home Repairs
- Overdue or Unforeseen Utility Bills
- Tickets and Fines
- Other Monthly Necessities That Can't Be Covered Otherwise (groceries, school fees, etc.)
Inappropriate Payday Loan Uses
- Taking Vacations
- Attending Concerts
- Buying Gifts
- Getting Pocket Money
- Taking Shopping Trips
- Any Non Essential Purchases
Why You Should Practice Responsible Payday Loan Usage
Defaulting on a payday loan can result in a snow-piling of financial stress and inability to cover the cost of bills and basic necessities. If you are unable to meet the financial requirements of repaying a short-term loan, you should not accept the loan. Failing to pay a loan on its due date can result in additional fees, issuance of a debt to a debt-collection service, and a negative change to your credit report.
Before accepting a loan, read through the entirety of any loan agreement to determine all fees and rates associated with the loan amount. Look at the repayment amount for your loan and determine if it is an amount you are reasonably able to afford.
If you are offered a loan with rates or fees that are higher than you can afford, you are not obligated to sign for and accept the loan.