If you need a 100 payday loan, then it's best that you understand how these loans work, and the procedure that will be followed in case you do decide this type of loan is what you need. Remember, with average rates above 400% APR, payday loans are not cheap cash. As such, you need to make sure that you know the process and understand what your responsibilities and obligations are under the loan terms before you take out the loan - otherwise, a loan as small as $100 can end up hurting you severely.
How Payday Loans Work
The first step in the process of taking out a payday loan is key - you need to determine if you really need this loan. Again, they are very expensive, and as such you should only take them out infrequently (maybe 1 or 2 times in a year) only in circumstances that are absolutely necessary. Taking out small cash loans for the purpose of taking a vacation, buying a TV, or some other form of entertainment does not qualify for an emergency and these loans should not be used for these purposes. Many studies have shown that average payday borrowers take out between 6 and 8 loans during a year, and a lot of this is due to the fact that people take out loans for things that are not truly emergencies. Do not fall into this trap - yes, it is very easy to take out this type of loan, but don't let the easy cash fool you - in the end these loans are nothing but easy cash and can hurt your financial situation greatly if you don't use them properly.
The second step is finding a good lender. Your options will vary greatly by state. Some states simply do not allow payday lenders to operate within their regions, so if you find yourself in one of these states you will need to look to an online lender for your loan. Each lender may operate slightly differently, however the basic steps are the same:
- Fill out the application. The application will ask you to verify three main things that are required to take out the loan. You will be required to 1) have a checking account (most lenders will require the account to have been in good standing for several months), 2) have a valid income source, and 3) verify that you are above the age of 18.
- Give the lender a post-dated check or an ACH authorization form (ACH stands for Automated Clearing House transaction and is basically just giving them permission to take money directly out of your checking account if you default on the loan).
- Set a date to go back and pay off the loan.
It's very important that you understand step number 2, and how that can affect you if you don't pay off the loan. So many people complain when they find payday lenders going into their checking accounts and automatically taking money out, not realizing that by signing the ACH authorization form that this is exactly what you are allowing them to do. Of course this form becomes null and void if you do pay the loan back in full - just make sure you do so in time, otherwise you will end up paying a lot more than you would like to for normal 100 payday loans.
The third step is making sure that you pay the loan back on time. We already talked about how the lender can essentially go directly into your bank account and take out fund (not a good thing, and something that you want to avoid obviously), but we didn't talk about the extra costs you will pay - late fees, returned check fees, collection fees, etc. if you don't get your payment taken care of - and this is all on top of an already crazy expensive loan. Remember this key point - do not, under ANY circumstance, take out a payday loan (for any amount of money) if you are not certain that you can pay it back on time.
Understanding how the payday loan process works can keep you out of severe financial trouble. Study these simple steps and make sure you understand how they work before you decide to talk to any lender.