Do you want to understand how payday loans work? Responsible Economy is here to explain how payday loans work and address any questions you might have. Let’s get started!
How do payday loans work
Payday loans operate as short-term, high-interest loans where borrowers receive quick cash, typically until their next paycheck.
Borrowers provide post-dated checks or authorization for electronic withdrawals. Upon approval, funds are disbursed, and repayment is due on the next payday.
High fees and interest rates apply, which can lead to an APR as high as 400%.
Borrowers can renew loans, often accumulating debt. While providing fast access to funds, payday loans carry substantial costs, making them a last-resort option for urgent needs, requiring careful consideration and timely repayment to avoid a cycle of debt.
Can they be requested online?
The majority of lenders that offer payday loans do so online. The process is entirely digitized. To apply online, you only need to follow these steps:
- Fill out personal information
- Choose the amount
- Submit the documentation
Are payday loans legit?
Offering and obtaining payday loans in the United States is entirely legal, yet not without controversy. The issue with payday loans lies in their interest rates, which can exceed 100% APR, significantly higher than the average loan rate of around 13% APR.
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Updated the day 1 September, 2023 by Alfredo Barandiarán
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