Instant Payday Loans
Instant payday loans are unsecured loans for small amounts. They are meant to provide you with cash for unexpected expenses while you are in between paychecks, hence, the name payday loan. Instant refers to how quickly you can get a payday loan - sometimes it may take less than 1 hour.
Instant Payday Loan Knowledge: What’s an Unsecured Loan?
An unsecured loan is a loan that is not attached to any collateral; collateral means something that has intrinsic value that your lender can confiscate if you do not repay your loan. Car loans are considered “secured loans” because they are backed by collateral, your car. If you fail to repay your car loan, the lender can repossess the car. Since instant payday loans are unsecured, instant payday lenders rely on your promise to repay the payday loan.
Instant Payday Loan Knowledge: Why is it so quick?
It’s easy to get an instant payday loan online because you don’t have to leave your house and search for a payday loan store. When you submit your application online, many lenders can view your payday loan request right away. Having the ability to send your request to so many lenders will also minimize the time it takes for a lender to respond, while increasing your chances of being approved.
Instant Payday Loan Knowledge: Is it Safe?
Instant payday lenders ensure your private information is protected by using encrypted websites. This means the online loan application process is not only easy, but also safe. Make sure to choose an instant payday lender that is trusted.
Instant Payday Loan Knowledge: How Much Can I Borrow?
Instant payday loans are for small amounts of money, since they are just a temporary solution for emergencies or unexpected expenses. You can borrow anywhere between $100 and $1,000, but payday loan amounts average $300. People usually only borrow what they need, because instant payday loans are expensive.
Instant Payday Loan Knowledge: Instant Payday Loan Costs
Instant payday lenders take on certain risks when lending to people since they don’t require collateral. So even though instant payday loans are easy to get, the convenience will cost you. In order to make up for potential risks of not being repaid, instant payday lenders charge higher rates.
Instant payday loans don’t seem very expensive because lenders charge a flat fee for a 2-week loan, but when you compare the terms to other loan options, you realize that instant payday loans are quite pricey. Most credit cards have an annual percentage rate (APR, the interest accrued over a year’s time) that averages 15%, but instant payday loans have APRs averaging 365%.
Paying $15 to borrow $100 seems pretty reasonable, but what makes it so expensive is that the loan-term, or the time period in which you are expected to repay the loan, is so short. Credit cards with annualized interest rates at 15% also charge $15 to borrow $100, but this is charged over a year’s period of time. Shortening the loan term to 2 weeks hikes the APR up to 390%.
Instant Payday Loan Knowledge: Rollover Costs
Instant Payday lenders allow you to extend the due date of, or roll over, your instant payday loan. Since 2 weeks can quickly fly by, many borrowers are unprepared to repay the instant payday loan when it comes due and roll the loan over instead.
The problem with rolling over instant payday loans is that the costs quickly add up. If you are charged a flat rate of $15 every time you roll over your payday loan, you will be charged $30 to extend the loan 2 times (giving you an extra month to repay the loan). When you add the roll over costs to the initial loan costs ($15), you end up paying $45 in fees just to borrow $100.
Compared to the average credit card, which would cost $1.73 to borrow $100 for 6 weeks, instant payday loans are costly, and can be difficult to manage. Many borrowers begin to struggle when they roll over their payday loans because the loan balance grows and is difficult to repay. Repay your instant payday loan on time to avoid additional fees and unmanageable debt.
Instant Payday Loan Knowledge: Use in Time of Need
Since instant payday loans are so expensive, you should use them sparingly and only when you absolutely need to. Instant payday loans are ideal for people facing unanticipated expenses that need to be paid right away.
Use Instant Payday Loans to...
- Cover emergency expenses (medical expenses)
- Pay for unexpected expenses (car repairs)
- Avoid late fees or bank charges (overdraft fees)
Instant Payday Loans are Too Expensive For...
- Shopping Sprees
- Student Expenses
Payday loans are expensive, so you want to be careful what you use them for. Using payday loans for unnecessary costs automatically tacks $15 onto every $100 purchase - the cost of instant gratification. Shopping sprees, splurging and vacations are unnecessary costs that you should save for instead.
Student expenses are ongoing expenses that may be difficult to repay right away while you’re in school. Not repaying an instant payday loan right away can result in significant late fees/rollover fees. Instead, students should consider student loans, which have lower interest rates and are designed for students that may not have a means of repaying the loan right away.
If you use instant payday loans, make sure that your next paycheck is enough to repay your instant payday loan and cover your regular expenses. Instant payday loans are not recommended for covering everyday living expenses, as this points to a more serious financial struggle that should be discussed with a government-approved Credit Counseling Organization.
Instant Payday Loan Knowledge: Compare the Costs
Instant payday loans are expensive, but they may be cheaper than other financial costs.
- Payday Loans - $15 (390% APR)
- Credit Card Late Fee - $25 (651% APR)
- Overdraft Charge - $35 (912% APR)
- Utility Reconnection Fee - $50 (1,303% APR)
When deciding on whether to get an instant payday loan or not, you should consider your needs and compare other charges and late fees you want to avoid.
Instant Payday Loan Knowledge: Make an Informed Choice
Instant payday loans are expensive, but they may be more affordable than other financial charges you want to avoid. Take the time to understand the costs and benefits of an instant payday loan, and whether you are willing to take on those costs. Be realistic about your situation Do you need an instant payday loan or can you wait? The better informed you are, the better position you’ll be in to make the right choice.