Payday loans can be used for short-term financial needs


Payday loans are a great option if you urgently need cash, but they can also be costly and have short repayment terms that can lead to debt traps.

A payday loan is not a proper term, but it is a short-term loan that is usually for $500 or less and is payable with your next paycheque.

The Consumer Financial Protection Bureau warns against payday loans because they can lead to “debt traps” and narrow the gap between pay checks or help with an unanticipated need.

Due to the high cost of borrowing, many borrowers are forced to pay higher fees to avoid the debt. They keep “Rolling over” and renewing their debt until the final amount they owe is higher than what they borrowed.

How does a payday loan work?

Payday loans come in many forms, including cash advance loans for people with bad credit, delayed deposit loans, payday loans online and cheque advance loan for those with bad credit. However, all of them work the same.

To obtain a payday advance, you might need to send a uncashed cheque, together with any fees, to your lender. You can also request that the lender such as Citrus North debit your current bank account automatically. The lender will typically give cash to you after that and this is organized by Citrus North…

The loan payment is due on your next payday. This usually takes between two to four working weeks. If you fail return the loan along with the financing fees, the lender has the right to digitally take your bank account and redeem your cheque.

This type of lending is allowed in many states. However, there are restrictions on how much money can be borrowed and what costs it will incur. Businesses may charge $10-30 per $100 borrowed, depending on where they are located.

Why Payday loans are popular?

Bad credit borrowers are best served by payday loans. This is because the borrower doesn’t need to worry that his credit is bad or non-existent while applying.

Potential customers include people with little or none savings. This is a testament to the massive market potential payday loans have and why they are so common. Because credit problems and money shortages are usually linked, payday lenders have a structured marketplace.

Even though many people can get by with their monthly expenses, an unexpected expense requires cash at once.

What are the Risks of Payday loans?

Payday loans are a great way to get quick cash but you need to be mindful of the possible risks.

  1. High Annual Percentage Rates
    Consider a two-week $500 loan with $15 fees for every $100 borrowed. According to the CFPB, this annual percentage rate of nearly 400% is possible.
  2. Short Terms
    Payday loans must be repaid within two to four weeks of the original loan. Policies vary from one state to the next, so double-check your state laws.
  3. Additional Fees
    There may be additional charges if you are late in repaying the loan. Additionally, fees will start to accrue if you extend your loan or reborrow. According to the Consumer Financial Protection Bureau about 25% of original payday loan amounts are re-borrowed nine time or more.

    You may also be charged additional fees for the following:
    • Nonsufficient funds fees will be applied to accounts that are insufficiently stocked when creditors attempt to cash your cheques or withdraw digitally.
    • You will be charged late fees or returned payment fees if the lender does not receive your repayments on time.
    • Rollover costs are additional to the initial loan amount and the first expense to extend your loan’s end date.

  4. Credit will not be built
    Poor credit may make it difficult for you to get a loan with reasonable terms. However, payday lenders do not usually record your credit report to credit bureaus. This means that the loan won’t help you build credit.

Alternatives to Payday Loans

  1. Payday alternative loans

    If you’re a member of a financial institution or are eligible to join one, it is possible to obtain private loans at lower interest. Payday replacement loans can be obtained by federal bank members for amounts between $200 and $1,000. These typically have a minimum of six months and a $20 application charge. APRs are no higher than 28%.

  2. Pay Cheque Advance

    In certain places, your employer may allow you to receive a payment advance without any fees. The decision of your employer may rest with you, so speak to your boss and a human resources representative about the options.

    Smartphone apps are also available, which can send you cash in lieu of pay cheques, if you meet certain criteria.

  3. Debt Settlement

    You may have to pay more for your credit card, but a debt settlement will help you resolve your debt and give you a fresh start.

  4. Personal Loans

    While personal loans may come with high-interest rates and fees, you should compare the rates of other lenders if you require a loan. The terms and rates offered by payday lenders may have a slightly higher interest rate than your personal loan, but this is something you should look into.

    When you apply for a loan, find a lender that responds promptly to credit agencies. A strong reputation for making timely loan payments will help build credit and allow you to qualify for better-rate loans.

  5. Credit Counselling

    The long-term goal is to resolve any financial issues that prevent you from returning to payday loan companies. Credit counseling is an option. This can help you establish a budget as well as open a deposit-saving account.


Researching and evaluating financing options is a good idea. You can also think about long-term financial enhancements that might help. It is possible to start by setting up a budget, and then a plan for debt repayment.
Payday loans may be acceptable. However, you should accept them with caution and repay them as soon as possible due to their high-interest rate.


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