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What Should You Consider When Taking a Payday Loan?

Personal_Finance / Debt & Loans Feb 22, 2022 - 04:25 PM GMT

By: Submissions


Online loans are booming in the United States. Financial companies can easily issue loans without requiring documents on the financial condition of the borrower. They compensate for this generosity with high rates on loans and harsh penalties for late repayment.

The ease of obtaining online credit makes this financial service accessible to all segments of the population. Services are provided without documents confirming the financial condition of the borrower. Often the borrower cannot realize the consequences that await him after signing a loan agreement.

The so-called payday loans are in great demand among borrowers. These are loans for up to one month and no more than one minimum wage. Online loans, as small as 200 dollar loans before paycheck are attracted by the ease of obtaining them. But it should be borne in mind that the cost of one day of use will be more than the market average. Also, such agreements usually suggest colossal fines and penalties for late online paycheck loans.

Loans Before Salary From Reliable Financial Companies

By law, the terms of the agreement for online payday loans are binding on the parties. That is, at the moment when you put your signature, including an electronic one, on the online loans agreement, you will have the obligation to repay the debt and interest. As well as you will have to pay fines and penalties in case you are late in payment with online payday loans.

Penalty & Default Interest Plus Interest - How Much Will Such a Loan Cost?

Late repayment of online payday loans leads to the accrual of a forfeit that is fine and interest. A widely used practice is to raise the interest on online paycheck loans in case of late debt repayment. For example, the penalty interest on online payday loans would be an additional 2% per day.

In this case, under the same agreement on receiving online payday loans for 30 calendar days, the interest for the user will be 2% per day plus a penalty interest of 2%. That is, already 4% per day, if there is no prolongation of the obligation.

The Law "On Protection of Consumer Rights" refers to the unfair terms of the contract. The establishment of a requirement for the consumer to pay a disproportionately large amount of online paycheck loans compensation is more than 50% of the value of the product in case of default on the contract. This boils down to the fact that penalties cannot exceed 50% of the cost of services for online loans before paycheck.

Consider the Priority of Debt Repayment of Online Payday Loans

Civil legislation provides the following general procedure of repaying claims for online payday loans unless provided by the contract:

1) the expenses of the lender of online payday loans related to the receipt of performance are reimbursed (bank commission when crediting funds);

2) interest and penalties are paid for online payday loans (that is, fines, penalties);

3) the principal amount of online payday loans are paid.

Consequently, if the borrower of online payday loans did not repay the debt on time or did not return it all, the lender's expenses associated with obtaining its performance will be reimbursed from the amount of the debt with interest and a fine; then, interest and forfeit (fine and penalty), and only then the amount of debt. The remaining amount will continue to be charged with interest, fines and penalties.

Calculate the Final Cost of Online Payday Loans

When concluding an agreement, the borrower often cannot calculate exactly how much it is obligatory to return to the lender. In many cases, contracts for online payday loans only indicate the percentage of using the loan per day, for example, 2%. The borrower does not realize that he is taking a loan at 730% per annum.

Consider Commissions for Additional Services

An online payday loan agreement may provide the payment of fees for the lender's “additional services” such as renewals, for example. The overwhelming majority of loan agreements provide for the possibility of prolongation in case of payment of the accrued interest.

Advantages of Payday Loans

Microfinance organizations have proven over the years that they have the right to occupy a certain niche in the consumer segment. Citizens are increasingly using the services of companies. Every year the number of borrowers is only growing. Like any financial product, microloans have positive and negative sides. If you do not go into the details of a specific program, then the pros and cons in almost every case will be the same.

Benefits of Online Loans Before Payday

MFIs could never reach the level they are today by offering products that are neither profitable nor in demand. Some credit organizations do not issue small loans and do not work with short lending terms as well. Thus, US citizens are forced to apply to MFOs for appropriate services.

Registration procedure

Credit organizations with rare exceptions do not engage in online lending. To obtain any bank loan, you must visit a bank office to sign a paper loan agreement. It takes a lot of time. In the case of an MFI, you can apply for a loan remotely. Companies transfer instant funds to bank cards, through payment transfer systems, to e-wallets, or in cash with courier delivery.

Submission of an application is made only if you have a passport without providing additional documents. It takes about 7-10 minutes from the time of submitting the application to the actual receipt of funds. No bank offers such conditions indeed. Some US citizens prefer not to ask for loans from friends or acquaintances but turn to the services of MFIs instead. After a couple of minutes, the required amount will be at the disposal of the user.

Consideration of the Application On the Payday Loan

The terms of consideration of incoming applications are considered a bonus. Some MFOs consider client applications within a minute. Therefore, the borrower does not have to spend a lot of time waiting for the final decision from the company.

By Paul Tom

© 2022 Copyright Paul Tom - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

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