Most of us face financial crisis at the end of the month from which we cannot recover without the help urgent credit. Payday loans come in handy during these times, because these loans help us to take care of these unexpected expenses till the time we receive our next paycheck. In spite of the fact that these loans have high interest rates, most Americans usually resort to these types of loans because of it easy accessibility. Moreover, people who do not have a credit history or people with a very low credit score can avail these types of loans because the creditors do not pull out the credit report and check the creditworthiness of the borrowers while offering payday loans.
The term for which the payday loans are offered may differ from state to state and may vary form 6 days to 120 days. This means that the loans which are offered for more than 120 days cannot be considered a payday loan. These loans can be obtained even online by providing certain information like your social security number, email id, contact information and your bank account details. They sometimes even take your authorization to debit money from your bank account in case you fail to repay the debt. Some lenders even offer fax less payday day loans which do not require any paperwork to be faxed to the lender, before you can get the loan. The lenders deposit the money in your bank account, whose details you have provided in the loan application form.
Now, the state laws have also fixed the ceiling above which payday loans cannot be offered. While for most states it has been fixed at $350, for the state of Washington it is $700.Moreover, there are certain states like Washington D.C, Maryland, Massachusetts, Connecticut, Vermont and New Jersey, where payday loan are prohibited by law.
Because of the high interest rate and other finance charges, these loans may put borrowers in vicious circle of debts and may push them to debt trap. Now, once the debtors fall in debt trap and default on their payments, the creditors report it to the credit bureaus and the outstanding debt gets reflected in the credit report as delinquent and affects the credit score for seven years. So one should always try and avoid taking such types of loans.
Steps that need to follow in order to avoid payday loans:
- You should always budget your expenditures and keep a very small portion of every paycheck, say $20, in your saving account with your bank and try to build up a contingency fund of $400 to $500, which you can use while you are in need of urgent cash either at the end of the month or during emergencies.
- You can ask your employer, friends or any of your family members for money against a written agreement or apply for a small loan from a credit union where you hold an account. You may also think of using your credit cards to take cash advance instead of going for payday loans.
- Try and get rid of existing payday loans. Instead of taking another payday loan to repay back an existing loan, you can work out a repayment plan with your lender and pay it off in installments.