Low Interest Payday Loans: Your Consumer Rights and Responsibilities
Have you been considering applying for a payday loan? If so, you’re not alone. Approximately 12 million Americans take out payday loans each year and, in the process, spend roughly $9 million on loan fees.
A lot of people assume that payday loans are inherently bad things.
In reality, though, they can be used responsibly. You just have to look for the lowest-interest option and make sure you understand your rights and responsibilities before signing any loan agreements.
Read on to learn everything you need to know about low interest payday loans — including exactly what you agree to when you accept them.
How Do Payday Loans Work?
Before we get into specific types of payday loans, let’s go over how payday loans, in general, typically work.
A payday loan is a short-term loan meant to help you make ends meet until you get to your next payday. Your next payday is usually the debt by which the loan needs to be repaid.
Most payday lenders do not pay attention to your credit score or financial situation. They’ll grant a loan to just about anyone who applies for one.
Because of this, in most cases, payday loans have very high interest rates. In fact, the average interest rate is 400% APR.
Payday loans are often for smaller amounts than traditional personal loans, too. This is because they’re not meant to act as a long-term financial solution.
If you don’t repay your payday loan by the date specified in your loan agreement, your credit score will be negatively affected and you may have a harder time getting approved for loans in the future. You may also have your wages garnished to make up for the money you borrowed.
What Are Low Interest Payday Loans?
Many payday loans come with very high interest rates. In some cases, though, you may qualify for a low-interest payday loan, which comes with much more manageable interest rates.
It’s important to note that even low interest payday loans have higher interest rates than traditional loans. For example, you might be charged an interest rate of 200 percent instead of 400 percent.
Don’t let this information deter you from seeking out a low-interest payday loan, though. After all, a 200 percent interest rate is still better than 400 or above, right?
Who Qualifies for Low Interest Payday Loans?
There are a lot of factors that can influence your ability to qualify for a low-interest payday loan.
Most payday lenders aren’t too concerned with your credit score. But, if you can provide them proof of employment or copies of your recent check stubs, that can help to show them that you’re a reliable borrower who can pay back the loan on time.
You might also qualify for a low-interest payday loan if you’ve never applied for a payday loan before. Many lenders will offer a temporarily lower interest rate to first-time borrowers.
Your lender might look at other aspects of your financial situation as well, such as your borrowing history and record of repaying past loans on time. In some cases, they even offer lower interest rates for completing certain kinds of education courses.
Clearly, there are a lot of factors that can influence your interest rate when taking out a payday loan. Because of this, it’s important to compare lenders and make sure you’re getting the best interest rates possible.
Things to Know Before Accepting Payday Loans
Taking out a payday loan is a big responsibility. In order to avoid serious consequences like wage garnishment and damage to your credit score, you need to know exactly what you’re getting into before you sign any papers.
Here are some questions you ought to ask yourself before you accept a payday loan:
Are Payday Loans Legal in My State?
First, you need to make sure you’re up to speed on the latest payday lending laws.
Did you know, for example, that some states have laws completely banning payday loans? These states are Arizona, Washington, D.C., New Mexico, Arkansas, and North Carolina.
Some states also lack many payday lending regulations and only require lenders to comply with set interest rate caps. These states are New York, New Jersey, Pennsylvania, Maryland, Connecticut, Vermont, West Virginia, and Massachusetts.
All other states have their own unique payday lending laws. Be sure to research the laws in your state and find out what regulations — if any — are in place to protect you from potentially predatory practices.
How Will I Pay Back This Loan?
If you’re going to take out a payday loan, you need to make sure you have a plan in place to pay it back.
Remember, in most cases, payday loans are only meant to last for a few weeks. That means you don’t have a lot of time to get together the money you need to make your payments on time.
How Long Do I Have to Pay Back This Loan?
You also need to make sure you’re clear on when the loan needs to be paid back.
Find out, too, how much flexibility there is with the repayment date. Can it be rolled over into the next pay period if you can’t pay off the loan with your next paycheck?
Read the fine print carefully so you know what your options are.
What Will Happen if I Default?
Finally, find out exactly what happens if you default on the loan. You need to know what you can expect if you don’t uphold your end of the bargain.
Of course, nobody wants to entertain the idea that they might not pay back their loan. But, it’s still important to consider the possibility and decide whether or not you’re willing to take on the responsibilities that come with defaulting on your loan.
Apply for Payday Loans Today
There’s a lot of misinformation out there regarding payday loans.
But, these loans can actually be a helpful tool for folks who are tight on cash and know they’ll be able to pay them back quickly. You just need to make sure you read the fine print before you sign the loan agreement.
Now that you know more about your rights and responsibilities regarding low interest payday loans, do you think this is the right type of loan for you?
If so, we can help at Bonsai Finance. Apply for a loan online today, or check out the Payday Loans section of our blog for more information.