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10 things to know about payday loans

In the past, choices for applying for a loan were limited to banking institutions. With advancements in technology as well as transformation of the financial sector globally, there has been an increase in the number of lending institutions offering a diverse range of financial solutions.

Payday loans are short-term loans, repayable within 30 days. Generally offered for amounts of less than R2500, these loans are ideal for paying off unexpected expenses. There is no collateral required for these loans and interest rates tend to be slightly higher.

While this is a general description of what payday loans are and how they work, there is a lot more to this.

10 things to know about payday loans:
Easy and flexible approval
Lenders that offer payday loans generally offer services online, making the loans easily accessible. This makes the application significantly more flexible. The loan amounts are typically deposited directly into the account of the borrower within 24 hours.

Short Term Loans
Payday loans are short term financial tools, so they are not designed for regular use. Instead, they should be regarded as ideal for dealing with financial emergencies.

Repayment within 30 days
Repayments are typically due on the date of your next payday. This period is usually 30 days, while some lenders have been known to extend this to 45 days.

High interest rates
Payday loans generally come with high interest rates. The financial industry is quite competitive, so it’s important to compare as much as possible. Before you apply for payday loans it’s important to keep in mind that high financial charges are standard.

Micro lending institutions often charge between 5 and 30% of interest.

No Collateral
These loans are unsecured, so this means that loan applicants don’t have to worry about putting any assets up as collateral.

Fast turnaround rates
Unlike traditional lenders, payday loan providers are known for high turnaround rates. Once borrowers have been approved for a loan, they can expect the loan to be paid into their account within 24 to 48 hours.

It could sink you deeper into debt
As a borrower, if you aren’t careful about how you use access to this type of credit, you could end up deeper in debt. For instance, if you skip a payment you will be charged more interest. This could lead to a debt spiral if you aren’t diligent about repaying your loan.

Talk to your lender
If you have any trouble with repaying your loan, ensure that you inform your lender. They may be willing to work out an alternative payment arrangement.

You may not have to worry too much about your credit score
Payday loans are generally offered by lenders to individuals without too much emphasis on creditworthiness. Blacklisted individuals often qualify for these loans. What’s the catch? Individuals with bad credit are charged even higher interest rates because of the high risk that they pose.

Read the fine print
Some lenders may charge you extra fees. Make sure that you read the fine print before accepting any loan terms. Legitimate payday loans should have clear and transparent terms.