Blog List > What is a Payday Loan?

What is a Payday Loan?

In recent years, payday loans have become one of the most popular forms of short-term lending, but many people take them out without ever really understanding how they work. What are payday loans, and are they actually as bad as the media makes them out to be? Find out how payday loans work, read about their pros and cons, then figure out if one would make sense for you.
 

How Payday Loans Work

There’s no argument about one thing: payday loans are one of the fastest ways to raise money. However, it should be stated that their speed and seeming convenience comes at a price; a much higher cost of borrowing when compared to other types of installment loans.

When you take out a payday loan, the amount of money you will be allowed to borrow will be based on the amount of your next paycheck.

This is where payday loans start to get risky, and it’s due to the way that payday loans are structured. Unlike other forms of lending, where you may have several months to several years to pay back the loan, the timeframe for paying back a payday loan is relatively short.

Payday loan lenders may be able to get you money quickly, but they also require you to give it back quickly; namely, at the time you receive your next paycheck.  

Since you’ll only have something like two weeks to raise the funds and pay off your loan, that’s a pretty daunting challenge, and the main reason why consumers have so much trouble keeping up with their payday loan debt.

It’s also why payday loans have been labelled a form of “predatory lending”, and banned in 14 states.
 

Types of Payday Loans

If you need to raise money quickly to cover a sudden, unexpected financial emergency and you are still considering a payday loan, here are the various types of payday loans that may best fit your financial needs.
 

Online Payday Loans

Online payday loans work similar to regular payday loans, with the difference being that they are administered and delivered entirely online.

You can quickly get access to online payday loan lenders by going to Google and searching for “online payday loans”, but make sure to thoroughly vet each potential lender, because there are many scammers in the marketplace!

This type of loan will still require you to fill out and send paperwork to the payday loan lender, but instead of having to do all that in-person, you’ll be allowed to complete the entire application process online.
 

No Credit Check Payday Loans

In general, payday loans do not require credit checks, which is why they are so popular for consumers with bad credit.  However, to receive no credit check or bad credit payday loans, you will still have to produce a great deal of personal information, including:

  • Your Citizenship Status
  • Your Address
  • Your Age
  • Your Proof of Employment/Income (usually with paystubs)

You may need to provide additional details too, as each payday loan lender has different requirements. The biggest benefit to no credit check payday loans is found in the name; you don’t have to face a credit check.

 

Faxless Payday Loans

A faxless payday loan works very much the same as the other types of payday loans, and simply doesn’t requiring doing any faxing. This type of payday loan is best for people who don’t own or have access to a fax machine, but who don’t want to visit a payday loan store in person, and who are wary of applying for a payday loan online.

Faxless payday loans got popular when fax machines were still a common presence in offices across the country, but with all the updates to modern technology, virtually every part of the process can now be handled either over the phone, or via email, which makes the faxless payday loan a bit of a relic.

However, they’re still offered by quite a few lenders, and for certain portions of the population, this remains a pretty popular option when needing to borrow money quickly.
 

Alternatives to Payday Loans

After you have evaluated all the different types of payday loans, then decided that they aren’t right for you, you may be feeling despondent, but we’ve got good news. There are plenty of other forms of borrowing that may be able to help you raise the money you need.
 

Payday Loans vs. Credit Card Cash Advances

Credit card cash advances are a popular type of unsecured loan that is far safer and far more convenient than payday loans. However, credit card cash advances do come with a few limitations of their own:

  • Credit card cash advances are typically only useful for small amounts of money, because they are limited by the credit limit on your card (and if you’re hurting for money, it’s likely you’ve already maxed out your card)
  • To receive a credit card cash advance you will be required to have a good credit score
  • Credit card cash advances are only available to consumers who have credit cards

Payday Loans vs. Traditional Bank Loans

If you qualify for a traditional bank loan, then you should probably get it instead, because banks offer money at the lowest interest rates.

The problems with bank loans are that they take forever to process, are only available to people with stellar project, and are typically only offered to people looking to do certain things with the cash.

Downsides to borrowing from a bank include:

  • The application process for a traditional bank loan can take weeks or even months to complete
  • Generally, traditional bank loans are only available to consumers with great credit scores
  • Traditional bank loans are typically only available to pay for certain expenses, like purchasing a new home, a new car, or investing in a business
     

Payday Loans vs. Vehicle Pawn Loans

Vehicle pawn loans are another great way to raise cash fast. A vehicle pawn loan works similar to loans from regular pawn shop, except that the pawn loan is attached to your car instead of some other personal possession.

To get a vehicle pawn loan you will need to bring your vehicle to the pawn lender so it can be evaluated and appraised, then you will be offered a secured loan based on the value of your vehicle.

Typically, you will have a few months to pay back your vehicle pawn loan (a substantially longer repayment period than you’d receive for a payday loan), but you also risk losing your vehicle if you aren’t able to fully pay back the debt.

The trick to pawning your vehicle is to make sure that you can pay the debt back quickly, because you wouldn’t want to lose it due to failing to live up to your side of the contract.
 

Tips for First Time Borrowers

If you have never taken out a vehicle pawn loan, pink slip loan, or a car title loan, then here are a few things you should know:

  • To use your car as collateral, it’s title needs to be in your name
  • To use your car as collateral, you’ll need to either own it outright, or be close to paying it off
  • To use your car as collateral, it will need to be worth at least several thousand dollars
  • To prevent getting into financial trouble, make sure you are able to pay back your loan on time. Remember, if you miss a payment, you may end up facing penalty fees or even repossession

Like every other form of lending, there are some risks associated with vehicle pawn loans, but all you need to do is follow the above tips and you should have a great experience with your vehicle pawn loan.

 

Contact City Loan Today

Even if you don’t have a great credit score, City Loan may still be able to help you get access to the money that you desire.

City Loan offers the best auto title loan and vehicle pawn loans in Long Beach, allowing you to raise thousands of dollars in a day.  

There’s a reason we’re so well known for being the best provider of loans for people with bad credit; it’s because we’re often able to help, even after other lenders have said “No”.

Our vehicle pawn loans are fast, easy and convenient, and we can get you the money you need the same day of your request. Even if you have a history of late payments, car repossessions, defaults, or even bankruptcies, we may still be able help.

nbsp;Fill our online application form or call 1-888-238-9085 to get the cash you want today!