When Online Payday Loans Are The Only Option

Imagine having to borrow money from friends, family, relatives or even neighbors? For most, the mere thought of having to broach the subject is too much to bear and too embarrassing to entertain. However, what does one do when bank loans, personal credit lines and credit cards just aren't the solution, or worse, aren't available at all? What does someone do when they have no means to access a short-term loan, a loan that is desperately needed to cover emergencies, expenses and bills? More to the point, what can anyone do when their poor credit rating is a guarantee they'll be refused for a conventional loan? Well, for those who simply have nowhere else to turn, there's always the ease of online payday loans. Simply put, payday loans are just like any other loan, but with one important exception; online loan providers don't base their decision to lend on an individual's credit rating. So given the option of payday loans, what should anyone expect when applying?

The Payday Loan Process

Today's online short-term lenders make it easy to get approved. Applicants must provide proof of citizenship, or be a legal resident. They must be employed and make a minimum salary of $1,000.00 a month. They must be of legal age, have a telephone number and address. Finally, they must have been employed for a minimum of three consecutive months at the time of their application. While there are some variations of this theme, most payday loan companies keep it simple and straightforward.

How Much Can Someone Borrow?

Applicants are often limited on initial loans. This is to ensure they are able to make payments. Initial online loans typically run between $100.00 and $300.00, but these amounts do increase on future loans. In most cases, these short-term loan providers allow individuals to borrow upwards of $1,000.00, or more, for each and every loan. However, there are laws in different countries that mitigate exactly how much payday loan companies can lend. The idea is to cut down on predatory lending practices that have recently plagued the industry.

What are the Costs?

Applicants must pay close attention to the interest rates charged via these short-term loan providers. Interest rates are almost always charged upfront and can be substantial when compared to the annual interest rates charged through conventional credit sources. Payday loans are short-term unsecured loans that must be paid off by the individual's next pay period. Otherwise, fees and penalties can be assessed, fees that are applied either by the day, or by the week.

Why Don't Payday Loans Do a Credit Check?

Like personal loans through a bank, payday loans are unsecured loans. However, unlike bank loans, payday loans don't require a review of the applicant's credit rating. This is because the payday company bases its decision to lend predominantly on the applicant's proof of employment. However, they also cover this risk by charging considerable interest rates.

How is the Interest Rate Charged?

The interest rates charged by online lenders are "upfront" and therefore do not follow the standard APR (annual percentage rate) charged by banks and other lending institutions. Instead, the online provider immediately adds an entire year's interest rate onto the loan. For instance, a $100.00 loan through an online provider, with a 40% interest rate, would mean the borrower must repay $140.00 on the due date of the loan.

Online payday loans are a possible solution for those who need access to cash immediately, and simply have no other alternatives. However, they are loans and therefore must be managed as such. Individuals must make payment by their next pay period, or face substantial fees and penalties.

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