Payday loans are unsecured loans that are granted to borrowers under a premise that payment will be derived from his next payday. Simply stated, these loans are those obtained in advance and will be paid from the proceeds that the borrower will receive on his next payday.
Payday loans are very accessible types of loans, especially for those who are in urgent need of cash. Because other types of loans such as personal and unsecured loans take a few days before they are processed, someone who is currently cash-strapped may not be able to pay off his obligations. To answer the issue of dire need, companies have made the system of extending these loans.
Because of the desire of many people to save, they end up depositing all their money in a bank and being left with no money to satisfy existing obligations. And because from that time, the only accessible source of cash for them is their salary, receiving it in advance will be beneficial.
Salary or wage
Payday loans are not confined to salaries alone. Even wage earners could also avail of these loans, as long as the amount they seek to obtain is within their salary or wage.
Types of payday loans
Payday loans are classified into two types:
1. Advance payment
These loans are in effect a form of advance payment because the employee receives his salary at a period before his scheduled receipt. Interest rates are charged because the money used as payment of the loan is money that is not yet designated to be paid as salaries or wages.
2. Payday lending store
In this type of system, the employees go to a payday lending store which grants them a small amount of cash to be paid in full upon the receipt of their paycheck or salary. Usually, the borrower executes a promissory note or a check, indicating there the amount borrowed plus the additional charges. When the date of receipt arrives, the borrower goes to this store and pays the proceeds of his previous loan.
With the development in technology, payday lending stores can now be accessed online by accomplishing a loan application form. The money borrowed is transferred to the borrower’s own account, and as soon as the salary is received, the store will charge his account for the payment of the loan and other charges.
Advice in acquisition payday loans
In obtaining payday loans, a person must consider the following:
1. Do not obtain an amount more than the monthly pay received
It is imperative that a person must not get an amount which is more than the monthly pay he receives from work. This is because at some point, he will be placed at the mercy of his employer.
For instance, a person earns $750 a month. In obtaining these loans, he must not get more than this amount. Neither should he request that the excess of this amount be taken from his next payday. In this instance, if he intends to obtain $1,000, he must not request to have his $750 taken from his current payday and the remaining $250 taken from the next payday. This system allows the borrower to create flexibility on when to get his salary. It also allows the employer to put pressure on the employee simply because he keeps on asking for an advance payment of his salary. Go her to see a full example of rates and prices compared at smslaneguiden.se in Sweden.
2. Resort to this loan only when needed
A person must consider this loan only when absolutely necessary. It is not advisable for him to take this loan whenever he wants to purchase something.
This is very important because if the employee would take advantage of payday loans to purchase something, he will not be able to receive anything for the succeeding paydays simply because he has, in effect “loaned” what he must receive. As such, if he has obtained an amount which he receives for a year, then in effect, he will not receive any salary for the year because all his salaries will be taken as payment of the loan.
Thus, it is important for him to use this only when he needs it.
3. Avoid accumulating interest charges
Like other loans, payday loans can also generate interest charges. As such, a person must not let the interest charges from his loans to accumulate. This is to avoid a larger payment of interests when the due date arrives.
However, unlike the other types of loans, these loans usually are imposed with lower interest rates. This is because the risk faced by the employer is eliminated. The interest rates, in effect, become the cost of borrowing the money because the employee has already received an amount which he must not yet receive.
4. Use the loan only on small purchases
Because the funds obtained from this type of loan is limited, a person must budget it and use it only on small purchases. The items which are highly recommended to be purchased using funds from these loans are food items, commodities, payment of bills and utilities, and settling of small loans which are already due and demandable.
It must also be noted that because the funds are limited, it may not be able to answer all the obligations which are due and demandable. As such, the borrower may opt to allocate his funds to these obligations.
Payday loans conclusion
Payday loans are accessible means to obtain funds in times of emergency. As such, they must be used only when needed.