For a long time, short-term payday loans, also known as cash advance or payday advance loans, were repaid on or before an applicant’s next payday. In these evolving times, the payment date for a payday loan may not have anything to do with an applicant’s actual payday at all.
What Is the Big Deal about Short-Term Payday Loans?
Every payday loan is short-term, and in order to pay them off, payment is usually required in full on or around an applicant’s next payday. Depending on when an applicant gets paid, a payday loan payment may be due in a week, two weeks, or a month. It is extremely rare for a payment to be deferred longer than a month. Unlike an installment loan, which allows the applicant to make many payments over time without penalty, short-term payday loans require upfront payment in full relatively soon.
Applicants do not have to provide collateral in order to be approved for or receive payday loans. Collateral is something of value that the applicant owns, such as the deed to a home or car. If payment is refused or an applicant can’t pay, collateral is seized in order to regain some or even all of the money lost. Without collateral, a short-term payday loan is unsecured. This means more risk to the lender when giving out these loans, so payday loans tend to be for lower amounts, require fast repayment, and have higher interest rates.
Why Bother with a Payday Loan?
Short-term payday loans are fast and easy, which allows an applicant to attack sudden financial emergencies. Situations such as a loss in the family, car repairs, or unforeseen doctor bills can all cause financial burdens that would otherwise be difficult to deal with. Payday loans are not to be taken out for the simple reason of fast money. These loans are not a magical solution for long-term money problems or burdens. Applicants should never take out a payday loan unless they know in advance that the loan will be repaid in full and on time.
Most cash advance loan companies will charge a fee for loans not paid in full by the next payday. Given adequate warning, a company’s representative will be more than capable of reducing, but not removing entirely, any fees and accepting partial payments. This is never ideal. Future interest rates are likely to increase for any short-term payday loans taken out by the same applicant, and nobody enjoys a higher interest rate.
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