Payday loans are also called cash advance loans because they pegged on the borrowers having a steady income. A http://financenorthamerica.net/ payday loan is an unsecured loan which you can apply for even if you do not have property or assets that can serve as collateral. A cash advance is a small loan employees make from their employers, and payments of the loan are assured by the employees regular income. The employers then simply deducts payments for the loan from the salary of the employee. Today, cash advance type loans are not just limited to employers, you can make the same loan at banks and other private lending companies.
How Payday Loans Work
Borrowing money from your boss is not as common as it used to be, especially since many workplaces now have insurance and benefits in place to take care of their employees and they do not expect to have to lend their employees money too. You can make a pay day loan at a bank or a private agency. You can even apply for the loan online. Most pay day loan companies will ask you to fax document proof showing your credit score and employment situation. Then grant loans depending on your risk as a borrower.
Some loan companies have low criteria for this kind of loans and will accept borrowers with poor credit score. But very rarely will you run across the lender that will accept an unemployed borrower. Unsecure loans like these are usually small, under $2000 and are payable in less than a year. These loans can be transacted very quickly and do not require as much paperwork as secured loans.
Missed Payments Equals Bad Credit Score
It is not unusual to find that most who apply for pay day loans do so to cover other loan payment for that month. Maybe they fell of their budget, or had some emergency to spend their payment money on, sometimes people just need a little help with credit card or mortgage payments. They make an application for a pay day loan and have a small amount deposited in their account in time to make payments. The borrower then repays the loan next payday when they are more able to do so.
The Consequence of Poor Credit Ratings
Missing payments on loans like credit card payments or mortgage payments will lead to lower credit ratings. A low credit score will prevent you from applying for future loans. Banks will also slap with penalty fees and higher interest rates. Considering how expensive the consequences of missing loan payments are, it is better to just make another loan to cover that month’s payment to buy some time before your next paycheck. If all goes well and you do make your payments, including your cash advance payments, then you have dodge the bullet for that month. However, if you fail to make payment on your pay day loan that was used to cover payments to your regular loans, then you are only digging yourself deeper into debt because pay day loans keep very high interests.
Payday Loans vs Payment Insurance
Payment insurance is a a kind of insurance that you can buy and use in case you might miss loan payments that month. Ideally, you buy payment insurance while you can afford to and while your credit score is good. Otherwise, it would be difficult to find a company who would want to insure your debt payments. Unlike payment insurance, there are no limits on how you can use your pay day loan. The lender might ask your intentions for the loan but they will not restrict your activities. This is much different from other loan services available at banks, wherein they limit the way a borrower can use their loans. If you can afford it, buying payment insurance is better than waiting to make a pay day loan when you need it in an emergency.