You are probably aware that for online loans no credit check is required. That is only one of the things that sets it apart from other loans and financial products, but it is a big deal already. It is one of the reasons why there are so many people who are out getting payday loans today. In fact, according to research, millions use payday loans yearly and the number is set to increase even more.
Importance of Credit Check
Before we can discuss payday loans and why it is so significant that payday lenders do not require any credit check, it is important to understand what your credit standing is all about. Your credit standing is exactly what its name indicates. It is a record or history of how you handled your financial obligations. It would show there if you missed out on payments or if you were late in paying. It would also show if you defaulted on any of your loans in the past. This is the reason why your credit history has such a big impact on your life and on your finances. It is not something that you should take lightly.
There are credit bureaus that keep track of all those information. If you get a credit card for example, the bureaus would know about that and have it on your file. The same thing is true with all the activities that you have on that account, so if you miss out on any payment, it’s on your file. When you apply for a new loan from a bank, the institution or the lender would check your record on the credit bureaus. You will be given a credit score on how well you have handled your past and current obligations.
If you defaulted and you missed out on many payments, then your score is not going to be great. When the lenders see that you have a poor credits score they might not lend you the money that you need or they might give you the loan, but under harsh terms. The harsh terms would be a safeguard in case you do the same thing that you did with your old loans. It is a form of guarantee since you are a high risk borrower. There is a high likelihood that a person with a low credit score would miss payments or default on his/her loan again.
So those who have missed payments and defaulted on their loans in the past would have little or no chance of being able to borrow again. Does it sound unfair? Without a doubt, the system is not perfect and there are those who say that there are many disputes with the accounts that show on the history of consumers, but it serves its purpose. It allows the lenders to avoid lending money to high risk borrowers.
People who have bad credit standing are forced to look for other options when they have to borrow money. One of the options that they have is to take out a payday loan.
Payday Loans and How They Work
Payday loans are loans that are taken out against the paycheck of the borrower. When a borrower takes out a payday loan it is supposed to be paid back when the borrower is able to receive his or her paycheck and that would usually last for a week or two. When the borrower does not have enough money to pay for the full loan then the account can be rolled over which means that there will be an extension to the terms of the loan.
The idea for payday loans is for a borrower to make it through the next payday. When there is a sudden expense and the borrower does not have the cash on hand to meet its cost, he or she can then turn to payday loans. Based on that idea, the payday loan can really be useful.
Add to that is the fact that the application for payday loans are done through the internet, then it will really be very convenient. Applying for online loans does not require you to go to the office of the lender. The process is done online. The lenders have setup their website so that you can fill your applications through that. There is also no need for you to submit any documents. They can do all of their verifications just from the information that you provide.
Another huge advantage is that there are no restrictions as to the way that the money that you can get will be used. Payday loans are very flexible in this regard. If you want to spend the money on clothes or gadgets, that is up to you. All that matters to the lenders is that you are able to pay back the loan on the date that you have agreed to do so.
What’s Needed in Applying for Payday Loans?
So what are the things that are needed when it comes to payday loans? Here are the basic things that are required by most lenders:
- You are employed
- You are of legal age
- You have a bank account that can be accessed online
That you are working is very important because that is the one assurance that lenders get that you will be able to pay back the money that they are going to lend you. Most lenders require that you have been working for your current employer for at least 6 months for them to give your loan an approval. You should be of legal age so that the agreement that you would be entering is legal. The bank account is very important because that is how they would transfer the money to you once the loan has been approved. That is also the means by which they would be taking out the payment from you on the agreed dates.
Payday Loan Pitfalls
The fact that payday loans are being used by people who have had some financial troubles is one of the reasons why payday loans are causing a lot of problems to people today. Most people who have bad credit standings have had difficulties with their finances and the use of payday loans will not help them to straighten things out. In fact, it’s a move in the wrong direction. It can cause more problems than benefits.
The biggest pitfall that payday loan users have to face is the high cost. There has been a drive to raise the awareness of people when it comes to payday loans but that hasn’t deterred most borrowers. Cash advance loans can have APRs of anywhere from 300% to 600%. No other financial product charges that high. Borrowers don’t see how expensive online loans are because what they are usually shown are the flat fees that are charged for the very short terms of the loans.
Another pitfall of payday loans is the easy way that one can get an approval. Because of the absence of restrictions on the number of times that a borrower can use payday loans people are tempted to keep on borrowing until they find themselves in a debt trap. When a person is in a debt trap, that person is forced to borrow just to meet the basic expenses. You do not want to find yourself in that kind situation.
Staying Away from Payday Loans
The moral of all the warnings against payday loans is that it should only be used as a last resort if ever. That means other options should be explored first. First of all, a borrower should try to get his/her finances in order so that there would be reason to use payday loans in the future. Getting your finances in order begins by having the right balance between your income and your expenses. To put it simply you should be earning more than what you are spending. When you have achieved that, you would have more money that you can set aside for your savings which in turn you can use for any emergency costs that might come up in the future.
If you do not have enough savings to cover for the emergency expense then you would just have to find some other means of borrowing money. There are other types of loans that you can turn to. A credit union for example provides loans that have better terms than what you can get from payday lenders. Another good option would be to find a person that you can borrow from, a friend or maybe a relative. They can give you better deals.
The bottom line is that payday loans are not the best option that you can turn to when you need quick cash. There other sources that you ought to consider first before you turn to payday lenders. You do not want to mess your finances even further just because of a single loan. Remember that the amount that you can borrow from payday lenders is not even that big. Don’t take the easy way out.