Payday Loan: What Is It, Benefits, Terms and Rates
The US microfinance industry is divided into several distinct segments. Loans are issued by companies on various terms. The key differences include the amount, interest rate, term. Cash advance Detroit is the most widespread and demanded product among borrowers.
What are payday loans?
A payday loan (also known as a cash advance) is a type of short-term borrowing where a lender will extend high interest credit based on your income. The main features of the product: the amount – up to $1,000 and the term – up to 30 days. Payday lenders usually charge interest of $15-$20 for every $100 borrowed.
The largest online microfinance institutions (MFIs) operate in the cash advance segment. Installment loans are the opposite product in terms of their key conditions. These are medium-term loans that are issued for a period exceeding 30 days. The amount usually ranges from $5,000 to $50,000.
A number of companies on the market operate simultaneously in both segments.
Differences between payday and installments loans
The so-called payday and mid-term loans have a number of fundamental differences. First of all, their amounts differ. There is also a difference in debt repayment. Cash advances are repaid in one lump sum on the due date.
Installments are paid off in parts, just like personal loans.
If you take a cash advance, interest is calculated daily until you close the debt. Installments loans are issued for a long term, so the daily accrual of interest can lead to a large debt. In this regard, interest is charged every week – for example, 2% per week.
As a result, the borrower will pay 28% for using the money for 14 weeks. The rate is much higher than that offered by a bank, but it is traditionally easier to get money from an MFI than from a bank.
In what states are payday loans legal?
Cash advance states include Alabama, Alaska, California, Delaware, Florida, Hawaii, Idaho, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Michigan, Minnesota, Mississippi, Missouri, Nebraska, Nevada, North Dakota, Ohio, Oklahoma, Rhode Island, South Carolina, Tennessee, Texas, Utah, Virginia, Washington, Wisconsin, and Wyoming.
How do you get payday loans?
Short-term loans gradually moved to the online segment. Most of the largest MFIs operate online without having their own offices to directly serve clients. Applications are submitted by clients through the company’s website or through partner resources.
There are not many companies operating in the offline cash advance segment. Market leaders serve the bulk of microfinance clients. The funds are transferred into the borrower’s bank account within 24 hours. The parties interact as follows:
- You fill out a short online application and wait for the lender’s approval;
- If approved, you get aquatinted with your individualized rates and terms offered by the lender;
- If you are satisfied with the offer, you accept it. The requested money is transferred to your bank account as soon as the same day or the next day.
The speed of funding and relaxed requirements make cash advances extremely demanded in 2021. According to the experts’ prognosis, they will not lose their relevance for many years to come.
Tags: finance, loans online, money, payday loans