How Do Payday Loans Work? ... Once you're approved for a payday loan, you may receive cash or a check, or have the money deposited into your bank account. You'll then need to pay back the loan in full plus the finance charge by its due date, which is typically within 14 days or by your next paycheck.
How much can I borrow with a payday loan? The amount you can borrow varies according to your state's laws and your finances. Most states that allow payday lending cap amounts somewhere from $300 to $1,000.
Instead, payday lenders make most of their profits from borrowers who cannot pay off their loans, and instead renew them repeatedly, quickly paying more in fees than they originally borrowed. Borrowers who get five or more loans account for 91% of payday lender revenues.
Keep in mind the interest charge is paid in addition to the original amount borrowed — so the $500 loan will cost almost $2,000 by the time its paid back in a year.
Payday loans are designed to trap you in a cycle of debt. When an emergency hits and you have poor credit and no savings, it may seem like you have no other choice. But choosing a payday loan negatively affects your credit, any savings you could have had, and may even cause you to land you in court.
The Pros and Cons of Payday Loans
Payday loans generally are not reported to the three major national credit reporting companies, so they are unlikely to impact your credit scores. ... If you lose a court case related to your payday loan, that information could appear on your credit reports and may lower your credit scores.
While not all payday loan lenders run a credit report, some do. If your credit score comes back poor, or your debt-to-income ratio is unfavorable, the lender may deny your application.
Better Day Loans review: Not a payday loan — but extremely high rates.
Payday lenders offer cash-advance loans, check-advance loans, post-dated check loans or deferred-deposit loans. They almost never check credit histories, making their loans easy to get, but interest rates are extremely high, and customers are among the nation's least savvy borrowers.
That's because debt collectors have a limited number of years — known as the statute of limitations — to sue you to collect. After that, your unpaid debts are considered "time-barred." According to the law, a debt collector cannot sue you for not paying a debt that's time-barred.
Payday loans come with exorbitant interest rates and fees that often make them very difficult to repay. If you can't pay back a payday loan, the account may be sent to a collection agency, which will damage your credit.
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