Payday Loans and Fast Cash Guide

How Do Payday Loans Work?

For most people the first time they need a payday loan they are in a financial emergency.  The stress of needing money trumps the importance of really figuring out what they’re signing up for.  They look for the first place that can get them some cash, and go with that one.  I’m not going to tell you that a payday loan is a bad idea, instead I want to show you how they work so you can make an educated decision on why you need one and where to get it from.  Staying responsible with payday loans is extremely important since getting yourself into debt is easy to do.  You may have to find a debt management group to help you out if you get into trouble, which is something that no one ever wants to do!

The reason people gravitate towards payday loans is that just about everyone applies gets approved.  There’s no credit check, no BS, just some paperwork and cash in your bank account.  Payday lenders will have their own specific qualifications, but the basics are:

That’s all there really is to how payday loans work.  You can borrow money based on how much you make, but the first loan is usually much less than the total amount that you can afford.  The reason for this is that first time borrowers are a much higher risk from the payday lender’s point of view.  If you ever need another loan you can go with the same company and you’ll be able to borrow much more.

Interest rates are high with all short-term loans like this.  When calculated into an APR it can be well over a thousand percent.  You have to realize that payday loans aren’t paid back over years, instead they are repaid in a couple of weeks.  If you were have a “traditional” APR of 14-18% you would only end up paying a dollar or so in interest, which would be great for you but unrealistic for a payday lender to stay in business.

On average, you’ll pay $25 for each $100 that you borrow on a payday loan.  That means that a $600 loan will cost you $750.  Keep that average in mind when you’re shopping around for a loan and if you come across something that is way higher or lower than that proceed with caution.

There are two common ways that a payday loan is repaid.  The “old-school” method is to write a post dated check for the day the loan is due for the total amount.  The second method, which is most common with online payday loans, is for the lender to automatically withdraw the money from your checking account.  If you get the option, I recommend going with the post-dated check so that the lender doesn’t have any sort of access to your funds.  I’m sure that you’ll pay your loan back, so you won’t have to worry about that, but I always err on the side of caution.

In order for you to get a good rate on a payday loan you have to be a smart shopper.  I know that you’re situation is stressful, but it you can stop for a second and treat this like you’re buying a car you will save yourself a lot of money and frustration.  I use the analogy of buying a car because no one hauls ass to the closest car dealership and buys the first car that they see.  Spend a few minutes to see what is out there and what their rates are like.  Trust your gut during the whole process.  If something feels fishy, it probably is, and your business will be appreciated elsewhere.

Payday loans are a great way to get cash in an instant.  If you know what you’re getting yourself into you’re much more likely to have a good experience with a payday loan and keep yourself out of trouble.

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