How Does a Payday Loan Work?

There may come a time when you must deal with an expense you were not prepared for. If you have no way to come up with the funds you need in time, you may want to consider a payday loan. But first, you must understand how does a payday loan work before you make this decision. If you have other means of handling the expense, such as using your credit card or borrowing from a friend, relative or bank, you may want to do so. But if there is no way for you to get the money you need, a payday loan can save the day.

You might hear a payday loan referred to as a cash advance loan or check advance loan. There are also title loans where the title to your car serves as collateral for the loan. Payday and title loans are not based on credit. Because of their lenient lending policies, the interest is very high on these loans and the longer you keep the loan the higher it becomes. Even with the high interest, this type of loan can be very helpful for an individual who has no other way to acquire the funds they need.

There are both advantages and disadvantages of a payday loan. One advantage is that there is no credit check, which is a good thing if you have bad credit. Applying is easy and fast, and can be done in the office, on the phone or on the Internet. You either get a check handed to you right there or the funds are deposited into your account. You pay nothing up front, and no one has access to your financial information or knows you got a payday loan unless you tell them.

The biggest disadvantage is the high interest rate. Interest rates on payday loans can be as high as 300 percent. Your best bet is to pay it off quickly, because the longer you go the more interest builds up. While you should repay the loan the next time you get paid, sometimes this is not always possible and you are left making monthly payments. Try to pay more than the minimum and get the loan paid off as soon as you can to avoid massive interest fees.

Now that you know how does a payday loan work, you can evaluate your financial situation to see if this option is right for you. If you have any alternate way of getting the money, you may want to use it. However if there is no way you can, a payday or title loan might be your only option. You should make sure you will be able to repay the loan in a timely fashion to avoid astronomical charges.It's easy to find a payday loan center, just check your Yellow Pages or search online. There are thousands of payday loan and title loan companies across the country.