Payday loans may be convenient for emergency cash needs, but they come with risks. Exorbitant interest rates and hidden costs can quickly bankrupt you financially and negatively impact your credit score.
To determine your repayment capacity, it is important to select lenders who assess your ability to repay. This involves checking your bank account information, performing a soft credit pull and verifying your income sources.
Credit check
Payday loans may not be your top choice, but they can provide a helpful source of short-term cash when you need it for an unexpected expense such as a new car, home improvement project or other unexpected bill. But be wary of potential traps that could cause major financial issues down the line.
One of the best ways to ensure you receive a loan that meets your needs is to shop around. Compare credit scores, interest rates, fees and more using tools provided by the Consumer Financial Protection Bureau (CFPB). With their assistance, you’re sure to find the lender most suitable for you.
Credit bureaus use a variety of data points to calculate your credit score, which is usually based on an algorithm that takes into account your financial history and recent inquiries. Depending on the model used, your score could range anywhere from 300 to 579. A higher credit score typically translates into lower interest rates and more options for financing large purchases such as homes, cars or vacations.
Interest rate
Sometimes, an emergency situation requires fast access to cash – even if your credit score is less than perfect. Payday loans can be obtained from various online lenders at low interest rates; however, it’s essential that you weigh all of your options before making a final decision.
A payday loan is an unsecured, short-term loan of up to $1500 that you agree to repay plus an associated finance charge on your next payday.
When searching for payday loans, be sure to factor in the annual percentage rate (APR), origination, prepayment and late payment fees. These costs can add up over time and amount to hundreds or thousands of dollars if not paid off before your repayment term ends.
Alternatively, you can utilize a peer-to-peer lending marketplace to locate individual investors willing to loan you money for a set amount. These loans have lower interest rates than payday loans but still require a credit check.
Fees
Payday loans can come with high interest rates and hidden fees that add up quickly. These may include processing, bounced check fees, late payments, rollover fees or penalties added onto the total amount owed.
If you are thinking about taking out a payday loan but would prefer other smaller loans with lower rates and more flexible terms, some federal credit unions may offer members payday alternative loans with terms up to six months, an application fee no more than $20 and APRs no higher than 28%.
You could ask a friend or family member for money, or use a mobile app that will advance your paycheck between paydays. This will save you from signing a contract with a payday lender and help build credit.
OneMain Financial
If you need money for an unexpected car repair, unexpected expenses or debt consolidation, payday loans can provide the cash flow needed. But which lender you select has a significant impact on your credit score and interest rates; thus it’s essential that you do some research and comparison shopping before signing anything.
OneMain Financial is an online lender that specializes in bad credit loans. Their loans feature fixed interest rates and repayment schedules, so borrowers can budget their payments with confidence.
They do not require a minimum credit score and may offer loans to people who can’t get approved from other lenders. Unfortunately, their minimum APRs are high; therefore, if your credit score and income aren’t low enough, you may find a better rate elsewhere.
They offer a seven-day cancellation policy, so if you decide against repaying the loan, you can do so without making payments. Plus, their customer service is top notch – both over the phone and in person at one of their branches.
