On a normal day, paying bills can be quite a challenge for most individuals and households. Unfortunately, with the COVID-19 pandemic, the financial situation has worsened, emphasizing the need for most people to stock up on emergency cash.
Payday loans give you access to short-term funds, albeit at a typically higher interest rate. Most payday loans are usually between $500 and $1500 or less. Additionally, your payday loan is due when you receive your monthly paycheck.
One could easily imagine that the pandemic will be helpful for the business of payday loan lenders. However, the exact opposite happened as fewer people took out payday loans. This can be attributed to a whole range of factors.
First, in the heat of the pandemic, most states made it easier for households to access lower-cost credit. As a matter of fact, the small business administration (SBA) has introduced a paycheck protection program to ensure businesses have access to credit to stay afloat and keep employees on the job.
Also, the need for payday loans with federal and child tax credits available to many individuals and other employment benefits waned. Nevertheless, many financial experts believe that the demand for payday loans could increase very soon. Despite fewer lockdowns and restrictions, COVID-19 is still in full swing. Therefore, pandemic loan rules may apply to most payday lenders.
Regardless, here’s how to get and use a payday loan during the pandemic. In this article, you will also read about the pros and cons of payday loans in these circumstances and determine if this is the best cash advance option for you.
How to get a payday loan during the pandemic
First off, payday loans are not as popular as they were a few years ago. Only about 31 states allow payday loans, while the rest have banned the lending structure at varying levels. Therefore, you may need to check your state’s credit standards to determine if payday loans are eligible.
If so, you can visit payday loan shops near you or access a lender app from your mobile device. Applying for a payday loan can be done through an application form provided by the lender. Since payday loans are unsecured, you don’t have to worry about collateral when applying for a loan.
Applying for a payday loan during the pandemic, or at any time at all, requires that you have current employment. You must submit your payment slip and authorize your lender to wire the amount, or you can write a postdated check for that amount.
Common terms for payday loans
Payday loans fall under a special form of financing as they differ from most traditional loans. Here are the usual credit terms to expect when taking out a payday loan in this pandemic.
- A Short Payment Period: Most people refer to payday loans as two-week payback loans. Because the time window for the repayment is very short and is usually no more than two weeks.
- High Interest Rate: Calculating the interest rate of payday loans is best done using the Annual Percentage Rate (APR). Most loans have an APR of 400% or more, making them very expensive.
- One-time payment: Unlike most loans, you cannot repay your personal loan in installments. All payments are usually completed immediately on the next payday.
What Happens If You Can’t Pay Off Your Payday Loan?
In most cases, borrowers cannot complete their payday loan repayments. Normally, the lender would try to cash the check or make an electronic transfer. If your balance is insufficient, your bank will charge you for an overdraft as often as possible.
If you continue to default, lenders can call non-stop, contact relatives, or turn you over to collection agencies. To avoid this, you can contact the lender to propose extended payment plans if you think you won’t be able to meet the payment due date. Most lenders are usually open to this feature. You can also take out a debt consolidation loan or file for bankruptcy if you really can’t pay the loan.
In extreme cases, after a long period of insolvency, the lender may request a settlement that obliges the borrower to pay less than agreed. Since interest rates are usually exorbitant, lenders end up losing nothing. However, this can ruin your credit score.
Alternatives to payday loans
If you decide that pandemic payday loans aren’t the perfect option for you, there are several alternatives you could try. Here are some other types of emergency loans without the disadvantages of payday loans.
- Bad Credit Loans: These loans are perfect for emergency situations, especially if you have a bad credit rating. Unlike payday loans, they are secured and have lower interest rates.
- Cash Advance Apps: Cash advance apps are mobile software that can offer credit in anticipation of future earnings. While they also charge an APR, they’re less expensive and aren’t likely to plunge you into a debt cycle.
- Credit Circles: Instead of getting payday loans with ridiculous repayment terms, you can pool resources from family or friends at little or no interest.
- Pawn Loan: This type of loan requires you to put up a property as collateral in exchange for a loan. If you pay as agreed, you will get your property back. This process is less expensive than payday loans.
Final Thoughts on Payday Loans
While payday loans are undeniably useful for emergency funding, they leave behind more than just a debt to pay off. Therefore many Financial experts advise Borrowers avoid loans. If you’re already in the one and the pandemic is affecting your ability to pay, you can take one of the steps recommended in this article. Otherwise, you better look for alternative emergency loan options.