Payday loans are very convenient, as they do not function the way most loans do. If you borrow from a bank or other traditional lending institution, then you must have something to show them, like a strong credit background or valuable asset, as collateral. Moreover, the lending institution will issue a long series of tests and background/character checks before they approve the loan you requested. Payday loans, however, do not operate in this fashion. They are quick and easy, requiring less paperwork, less legwork and no credit checks. This convenience, however, comes with a hefty price.
Most payday loans exist to remedy quick money needs. Most people get a payday loan if they need a little extra financial help until payday, at which point they’ll again be good to go. When payday comes, the lending company will demand the payment as early as the date of the payday itself and as late as three days following the payday. If you miss just one or two deadlines, however, you will pay a high interest rate.
Interest rates can sometimes reach as high as 57%, which is compounded. If you continue to delay payment, your debt will keep increasing until you will find yourself in a loop of perpetual debt as the balance you’re supposed to pay off continues to rise. This is because most payday loans come with compounded interest and is why you have to pay an amount above the interest itself; otherwise, you will find yourself trapped in a cycle of repayments. Therefore, it is in your best interest to repay payday loans as early as you can. Remember that they are meant only for short-term needs, so self-discipline is a must.
Remember, although the payday loan process is designed to be fast paced from application to payment, it is meant for short-term lending only.