Payday loans are the type of loans that people borrow so that they can survive on the money they get until the day they get paid their own salaries. These loans are usually short term, lasting from a few days to one month in most cases. These loans are never a good solution to a financial crisis and instead of taking them out, people are usually advised to find other alternatives.
Below, I will be looking at how paydays work so that you understand what you would be getting yourself into if you decide to take one.
How payday loans work
Like we have stated below, paydays are usually short-term loans. These loans are usually very easy to acquire if you have a regular salary because all you have to do is just make a phone call to your bank and they will extend the loan to you. Today, you can even send the bank or the lender a text message on your phone and you will have the money in no time.
When the duration of the loan is over, the lender expects you to repay the entire amount extended to you in credit. In addition to repaying the entire amount, you will also have to pay any accrued interest plus any charges that the lender decides to charge you. However, borrowers are usually aware of these charges because they are usually indicated in the terms and conditions of the loan that the borrower is given before they borrow the money.
It is also possible to borrow payday loans for a longer period than the typical 30 days. If you do this, you will be required to repay the loan back in installments within the period agreed upon between you the borrower and your lender. You need to understand that the amounts borrowed in payday loans are usually small, but they come with a huge interest rate.
What payday loans cost you
Like we have seen above, payday loans are meant to be very expensive. If you compare the annual interest rate on payday loans and the one charged on other kinds of loans, you will realize the latter is very high. Normally, the interest rate rises up to about 1500% in some cases. This is very high when you compare it to the 22.8%, which applies to typical credit cards. However, the interest rate is usually capped by the law in most countries, but that doesn’t mean that they are still not very expensive to get.
Before you can agree to a loan, most lenders that offer payday loans will request you to set up a recurring payment. If you agree to this kind of arrangement with your payday lender, you will be able to take whatever the money you need out of your bank account directly. This can be done using a debit card issued to you by your lender. You can also make snabblån direkt utbetalning. This is often handy to most people, but it usually develops into a problem within no time because borrowers suddenly lose control of their borrowing behavior.