There are occasions, perhaps when an unexpected bill comes along, when you need a short term loan. If no friends or family members are able to help by lending you some money then one of your only options will be to look at guaranteed payday loans instead. Sometimes people think they are dangerous, but are they really?
How Guaranteed Payday Loans Work
To better understand the issues involved it's going to be necessary to first have a look at how pay day loans actually work. We'll go over that briefly then, it's extremely simple so it won't take very long.
We're in the digital age now so to get a payday loan you're not even going to have to leave your house, as long as you have an internet connection. And the only question that is going to determine whether your application will be accepted or not is going to be how much you make in a month. If it is enough to cover the loan then there shouldn't be a problem.
When you get a long term loan, one of the main differences is that they are going to make a credit check. Meaning that they'll check whether or not you have paid loans back in the past or not. And if you haven't, or you've missed a number of payments, then the lender might feel that you are not worth the risk. Or to compensate them for the added risk you might have to endure higher interest rates.
If you've had experience with applying for loans before then, you might be surprised that no credit check is performed. It doesn't matter whether your credit history is good or bad, that's not going to be a factor in whether your application is accepted or not or what the interest rates will be. But is that because, as some people imagine, payday lenders are offering up debt traps?
The No Credit Check Rationale
If you want to understand why a payday lender is not going to make a credit check, it's useful to understand why a bank or another long term lender will. That's because the loan has to be paid over such a long period of time that nobody can really say what the circumstances are going to be for the borrower for the whole term of the loan. So they look to the past to better predict whether they are going to be good at paying back the loan.
From this description then it should be quite clear why it is that a payday lender does not make a credit check. They don't have to try to predict a long way in to the future, they only have to know how much you make in a month because it is with the following month's pay cheque that you'll be making the payment with guaranteed payday loans.
In theory of course there is nothing to prevent the payday lender from making a credit check anyway. That might reveal information that is going to be useful sometimes. However in practice they would lose out by doing that because it would mean that getting the loan would take longer, and speed is essential with a pay day loan because it is such a short term thing.
Are They Expensive?
Another charge that is made against guaranteed payday loans is that they are overly expensive. That they take advantage of the fact that people are in a desperate situation when they need one so that a very high interest rate is charged. However this comes from looking at the APR rather than the actual amount of interest that is charged over the period of the loan.
If you judge a loan that is supposed to last for a month by the amount of interest you would have to pay if it lasted a year (as the APR does)... does anyone see a problem with that? Clearly it is a very big problem, it means that it will seem you are paying a lot more than you actually should be if you pay back on time. So really a payday loan is an excellent solution to short term financial troubles.
How Guaranteed Payday Loans Work
To better understand the issues involved it's going to be necessary to first have a look at how pay day loans actually work. We'll go over that briefly then, it's extremely simple so it won't take very long.
We're in the digital age now so to get a payday loan you're not even going to have to leave your house, as long as you have an internet connection. And the only question that is going to determine whether your application will be accepted or not is going to be how much you make in a month. If it is enough to cover the loan then there shouldn't be a problem.
When you get a long term loan, one of the main differences is that they are going to make a credit check. Meaning that they'll check whether or not you have paid loans back in the past or not. And if you haven't, or you've missed a number of payments, then the lender might feel that you are not worth the risk. Or to compensate them for the added risk you might have to endure higher interest rates.
If you've had experience with applying for loans before then, you might be surprised that no credit check is performed. It doesn't matter whether your credit history is good or bad, that's not going to be a factor in whether your application is accepted or not or what the interest rates will be. But is that because, as some people imagine, payday lenders are offering up debt traps?
The No Credit Check Rationale
If you want to understand why a payday lender is not going to make a credit check, it's useful to understand why a bank or another long term lender will. That's because the loan has to be paid over such a long period of time that nobody can really say what the circumstances are going to be for the borrower for the whole term of the loan. So they look to the past to better predict whether they are going to be good at paying back the loan.
From this description then it should be quite clear why it is that a payday lender does not make a credit check. They don't have to try to predict a long way in to the future, they only have to know how much you make in a month because it is with the following month's pay cheque that you'll be making the payment with guaranteed payday loans.
In theory of course there is nothing to prevent the payday lender from making a credit check anyway. That might reveal information that is going to be useful sometimes. However in practice they would lose out by doing that because it would mean that getting the loan would take longer, and speed is essential with a pay day loan because it is such a short term thing.
Are They Expensive?
Another charge that is made against guaranteed payday loans is that they are overly expensive. That they take advantage of the fact that people are in a desperate situation when they need one so that a very high interest rate is charged. However this comes from looking at the APR rather than the actual amount of interest that is charged over the period of the loan.
If you judge a loan that is supposed to last for a month by the amount of interest you would have to pay if it lasted a year (as the APR does)... does anyone see a problem with that? Clearly it is a very big problem, it means that it will seem you are paying a lot more than you actually should be if you pay back on time. So really a payday loan is an excellent solution to short term financial troubles.
About the Author:
If you are in need of a short term loan, or instead you would just like to know a bit more about it, visit Guaranteed Payday Loans where author Jenson Hill, enjoys writing frequently.
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