What is a Payday Loan?

Hi Buddy,

When I just started working, my salary was too low to make ends meet. However, in the middle of the month, suddenly I was trapped in a medical emergency. Due to the crunch in savings, I had to opt for a payday loan. Hence, I would like to share a few things that I have learned about what is a payday loan.

According to my experience and understanding, Payday loans are unsecured, short-term financial advances that people take out to float themselves until their next paycheck arrives. As a result, a little amount of money is lent out, generally at a very high rate of interest (up to the order of 30-50 percent ).

Payday loans are designed for people who are struggling to make ends meet and are frequently broke at the end of the month. Depending on the loan issuer, these loans must be repaid between 7 to 60 days. 

The loan is particularly expensive because of the short term, the urgency of the borrowing, and the danger of payback. However, many are willing to accept it simply because of the ease it provides in an emergency.

In India, payday loans are utilised for a variety of reasons, including wedding loans, medical exigencies, and school fee payment.

As I said that I was having a medical emergency, a severe toothache, and my dentist advised me to get a root canal and a dental implant. The agony was too much to handle. 30,000, according to my dentist would be the cost. 

Then one of my friends introduced me to the concept of a payday loan and what is a payday lender. Hence, I went to one of the many online payday lenders who can provide me with a quick payday loan.

My request was for a loan of a seven-day term and a principal amount of 30,000 at 1% interest per day as I was expecting my salary in seven days.

So, 30,000 (loan amount) + 2100 (interest) = 32,100 must be paid back in 7 days.

In essence, if you have to take out a 30-day loan, you will be charged 30% interest. If you take out a 60-day loan, you will be charged 60% interest. In addition, if you are late, you will most likely be penalised on a per-day basis.

After understanding, what are payday loans; let us focus on the

• Quick and Simple:

 It is a quick loan, in that it is frequently accepted and disbursed within minutes, eliminating the burden of long waiting

• Minimum Documentation and Formalities:

   

Having a bank account and sharing some basic personal and financial information is usually the only need. Unlike other loans, it does not necessitate lengthy documentation

• No Credit Check:

   

Because these loans are frequently used by the working poor, there are no credit checks or collateral requirements. This loan is available to anyone, regardless of their financial situation

• Very High-Interest Rates: 

While daily interest rates may appear to be acceptable, when annualised, they can reach 400 percent annual interest (APR) or higher

• Debt Trap:

If you can't pay back the loan in the next month, you'll likely be hit with a slew of additional fees and penalties. This makes it difficult to repay in the future, increasing the risk of falling into a debt trap

I hope this answer would help you with what is a payday loan.

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