Understanding Payday Loans – The Basics and Beyond
A payday loan, in essence, is a short-term but high-interest loan structure. It is available to almost all consumers and does not require too much paperwork.
But, there is a catch.
Unlike any other borrowing infrastructure, the amount usually depends on what you earn from your job or business. Therefore, when you document a loan, you must submit a pay stub to the lender. They will first check everything and then determine the amount.
While almost anyone can apply for payday loans in Ireland, it may not be available in all cities. So before you jump in, do a bit of research on this aspect.
How does a payday loan work?
As mentioned earlier, a payday loan provider will ask you to show proof of your overall income. Usually, showing your pay stub from your employer will suffice for this.
Once they have reviewed everything, they will lend you whatever amount you may need. Once you receive the money, you will have a short time (~30 days) to refund it again.
Generally, a payday lender will not assess your ability to repay the money you are going to take from them. Therefore, for them, the risk of losing their money tends to be quite high.
Because of this, they tend to charge you extremely high and absurd interest. Moreover, missing your repayment date can also be a mess in your case.
Now, that doesn’t bode well for a borrower, as you may need to take out another loan to cover the first one. And, the circle could continue until you are stable enough.
How much will a payday loan cost?
The cost of a payday loan can be much higher than usual, as mentioned earlier. For example, if you took $100 from someone, you might have to offer another $10 to $30 in total. In some cases, it can even get higher than that.
Therefore, before taking out a payday loan, we will ask you to find out as much about the loan as possible. And don’t forget to use a calculator for your goal as well.
This will help you get an idea of how much you will have to pay. So, you can start making a plan regarding the same in advance and avoid any kind of calamity.
How much can you borrow?
Unfortunately, the amount of personal loan you can get will depend on your annual income. On top of that, it could also change considering the law of the city you currently live in. So, before taking a step in this aspect, we will ask you to do proper research in this regard.
Usually, as a general rule, you can get between 300 and 1,000 euros when applying for a payday loan. But, if you have a higher income, the amount could increase even more. Talk to your money lender to get more information in this regard.
Can you build credit with payday loans?
As a payday loan is a short-term borrowing procedure, many people consider using it to take care of their low credit score. Unfortunately, it doesn’t work that way.
Most payday lenders don’t report your deed to the credit bureau at the right time. So they can’t put your file in the same. However, here’s the catch.
If you do not repay your loan, your credit will be seriously damaged. The payday lender will report any credit issues to the office in this case. Yes, they will.
Also, in some cases, they might sell your debt to the collection agency who will contact the office. And it will reduce your credit score to some extent.
A payday loan, in essence, is a high-risk, low-return investment. Therefore, we don’t think you can get much benefit from taking it. However, if you think you will be able to repay all the money you have borrowed, then go for it. Just be sure to tell the person to let the office know that you returned the money to them on time. This will help you increase your credit score.