On a regular day, settling bills can be quite the challenge for most individuals and households. Unfortunately, with the COVID-19 pandemic, the financial situation has become worse, thereby stressing the need for most people to get emergency cash.
Payday loans offer you access to short-term funds, albeit at a generally higher interest rate. Most payday loans are usually between $500 – $1500 or less. In addition, your payday loan is due when you receive your monthly paycheck.
One would easily imagine that the pandemic will be helpful to the business of payday loan lenders. However, the very opposite happened, as less people took payday loans. This can be traced to quite a number of factors.
Firstly, in the heat of the pandemic, most states made it easier for households to access less costly loans. In fact, the Small Business Administration (SBA) undertook a Paycheck Protection Program to ensure that businesses could access loans to stay afloat and keep employees at work.
Besides, with federal relief and child tax credit available to many individuals as well as other employment benefits, the need for payday loans subsided. Nonetheless, many finance experts believe that there may be a surge in the demand for payday loans very soon. Although there are fewer lockdowns and restrictions, COVID-19 is still in full swing. So, pandemic loan rules may apply to most payday lenders.
Regardless, here’s how to navigate getting and using a payday loan during the pandemic. In this article, you’ll also read about the pros and cons of payday loans in these circumstances and determine if it is the best cash advance option for you.
How to Get a Payday Loan During the Pandemic
To start with, payday loans are not as popular as they were several years ago. Only about 31 states allow payday loans while the rest have prohibited the lending structure to varying levels. So, you might have to check with your state lending policies to see payday loans are allowed.
If they are, you can visit payday lending stores close to you or access a lender app from your mobile device. Applying for a payday loan can be done through an application form from the lender. Since payday loans are unsecured, you don’t have to worry about collateral when requesting a loan.
Requesting a payday loan in the pandemic, or at any period at all, requires you to have a current employment. You will need to submit your payment stub and authorize your lender to transfer the sum electronically or you can write a postdated check for that amount.
Common Terms for Payday Loan
Payday loans fall under a special form of financing as they differ from most conventional loans. Here are common loan terms to expect when taking a payday loan this pandemic.
- A short payment period: Most people refer to payday loans as a two-week return loan. That’s because the time window for repayment is very short, usually extending to no more than two weeks.
- High interest rate: Calculating the interest rate of payday loans is best done using Annual Percentage Rate (APR). Most loans have an average APR of 400% or more which makes them very costly.
- Single payment: Unlike most loans, you can not repay your payday loan in instalments. All payments are usually completed at once on the next payday.
What Happens If You Cannot Pay Back Your Payday Loan?
Most times, borrowers are unable to complete their payday loan repayment. Usually, the lender would try to cash the check or make an electronic transfer. If you have an insufficient balance, your bank will charge you for an overdraft as often as that occurs.
If you continue to default, lenders may call incessantly, contact relatives or hand you over to collection agencies. To avoid this, you can contact the lender to propose extended payment plans if you believe you won’t be able to meet up with the payment due date. Most lenders are usually open to this feature. You can also take a debt consolidation loan or file for a bankruptcy if you are genuinely unable to pay the loan.
In extreme cases, after a long time of default, the lender may call for a settlement requiring the borrower to pay lower than agreed. Since the interest is usually exorbitant, lenders end up losing nothing. However, this may ruin your credit score.
Alternatives to Payday Loans
If you decide that payday loans are not the perfect option for you in a pandemic, there are several alternatives you could try. Here are some other emergency loan types without the demerits of payday loans.
- Bad Credit Loans: These loans are perfectly suited for emergency periods, especially if you have a low credit rating. They are secured unlike payday loans and they have lower interest rates.
- Cash Advance Apps: Cash Advance Apps are mobile software that can offer loans in anticipation of future earnings. While they also charge by APR, they are less expensive and are not likely to throw you into a debt cycle.
- Lending Circles: Instead of getting payday loans with ridiculous payback conditions, you can pool resources fro family or friends at little to no interest.
- Pawn loan: This type of loan requires you to submit property as collateral in exchange for a loan. If you pay as agreed, your property will be returned. This process is less expensive than payday loans.
Final Thoughts on Payday Loans
Although payday loans are undeniably useful to emergency funding, they leave you with more than just a debt to settle. That’s why many financial experts advise borrowers to avoid loans. If you are already in the one and the pandemic is affecting your ability to pay, you may take one of the steps recommended in this article. Otherwise, you are better off seeking alternative emergency loan options.
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