Does Payday Loan Work?

Posted on 2015-03-20

Budgeting your money into tiny chunks of family expenditures is a stressful job. Often, the allocation is not enough. From time to time, certain circumstances and unexpected expenses arise such as medical emergencies, your child’s field trip, or a reunion. Loaning from banks may require you to undergo a process which may eventually lead you to a dead end especially if your account is not that outstanding. This fact alone may make all of us anxious but the good news is we don’t have to anymore. There’s a type of loan designed to help us during these times. It’s called payday loan.

Why It Works?

Payday loan is a small and unsecured kind of loan that caters your financial needs of cash when you need it to be urgent and quick. Because of its nature of interest adding, this loan is a short-term borrowing since long-term loans tend to be expensive which may become more of a problem than a help to the borrower. As its name suggests, the payment of the payday loan is at the borrower’s next payday. Usually, the income and employment of the borrower is verified to ensure his/her capability to pay.

In recent advancement of payday loans, prospective borrowers complete online loan application that verifies their identity then the funds are transferred through direct deposit to the borrower’s account. The payment for the loan together with the interest is electronically withdrawn from the borrower’s next payday.

When is it Used?

Basically, this type of loans is suitable for people needing of cash in short-term and will be able pay back the loan amount on the next pay day. One of the major reasons why many people seek for payday loans is that the borrowers might have failed the eligibility criteria banks have set for regular loans. Because of this practice, borrowers find other establishments that can offer short-term assistance. If all lenders were like banks that scrutinize the paying capability of borrowers down to the edge, the only people who will be able to borrow money from these lenders are the rich ones that make up the 1% of our population as referred by the Occupy movements.Another feature of short-term loans which has increased its popularity is that the interest rates are usually lower than other types of loans due to its short nature of repayment.

However, you must remember that this loan is meant for a short period of time. Consider payday loans only when necessary and know your limitations. Many people have fallen to bankruptcy and even in jail because of borrowing much more than their capability to pay. Don’t be one of them.

More often than we think, we find ourselves experience shortage of money. And yes, this can happen to us in spite of careful financial forecasting and budgeting. There will always be times when you cannot avoid needing additional cash for unanticipated expenditures and not all the time you have the patience to stand in line and be interviewed rigorously about your finances by a bank representative. These are the times you should use payday loans.