How Do I Know My Eligibility for Payday Loan

How Do I Know My Eligibility for Payday Loan

Jan 6, 2020, 12:09:07 PM Business

Post-dated paycheck loans commonly referred to as payday loans, cash advances or deferred deposit credits are the lending product that is designed to provide finance to the borrower on the pay stub as security. The lending company advances cash to the borrower with the intent of getting it back with interest at the end of the month when the client gets paid. Because of the high risks of low pay, poor credit rates, and insufficient collateral, these types of loans are overly expensive from exorbitant interest rates that are imposed on them. Loan eligibility from any standpoint starts from your age, credit history, and income. The three main factors of considerations are meant to prove that you are of legal age, you have some sense of financial obligation and you are able to post in the monthly deposits which are required towards the loan repayment and sometimes, the down payment that is included as a necessity.

This article will, however, take you through what you need to qualify for a Legal Payday Loan. This is necessary because being rejected for a loan further deteriorates your credit rating, hence a great idea to only apply for financing from a lender you are certain of approving your application.

Prequalification steps

Before you go ahead to apply for a loan, consider the following steps. These steps will determine your qualification for the funds you are looking to be advanced with. Hence, they are necessary putting in mind that payday loans are somewhat strict and limited to only those who qualify.

Review your legal options: you should research to know how free payday lenders are allowed to trade in the market. This is so important since there are some countries and states which have banned payday loans from being ventured within their borders, while others have implemented some stringent measures for operating such business. Depending on what you unearth to be the prevailing legal conditions, then you would have a clear set of moves to make.

Review your loan options: this is meant to make you have a clear head about payday loans. It is advisable you do some shopping around for alternative lending products to avoid being slapped with exorbitant rates which may prove difficult to repay. Payday loans are just an option in many which you should as well consider before sticking to it. Some alternative forms of financing to payday loans are as follows.

  • Installment loans; are advanced at a lower APR than payday loans and offer a flexible payment period of up to two years. You are however likely to pay more due to the longer payment periods. Hence inflating the costs over time. compared to payday loans this is a good option since with payday loans, you are likely to be trapped in a cycle of debts whereby you pay and borrow again incurring more losses than you would if you took out installment loans and pay a one-off at the end of the loan period without any vulnerability. Furthermore, installment loans offer higher credit amounts than payday loans.
  • Auto loans; also known as logbook loans, are types of secured asset financing where you use your car or business vehicle are the security when applying for the loan. Apart from offering incredibly low rates of interest on their amount, car loans are usually easier to pay since you are given a reasonable payment period.
  • Friends and family; if in dire financial need, you might want to consult your friends and family to see if they can advance you with cash for later repayment. Alongside this, there exist government programs that are meant to assist people financially, for example, the Medicaid.

Shop for lenders

Choosing the best lender amongst the rest means you need to get the best rates existing in the market, a lender with the best terms of payment, the one who offers the right amounts you require and those who are licensed to operate in your country of residence. Therefore, the amount you repay from your paycheck greatly depends on your skills to pick out the best lender from the many around.

Checking your qualifications

Eligibility criteria for the loan usually vary from one lender to another. Therefore, with the one you have settled for; enquire about the terms and requirements for the loan. Below are the necessary points to consider.

  • The legal age of 18 years and above and have a national identification card for proof.
  • Be in possession of a valid bank account in which your salary is usually deposited.
  • Be able to prove income inflow and outflow. This can be proved by providing bank statements on your account, tax records, latest payslips, etc.
  • Have a good credit rating. This is however not so important but it helps avoid ultra-high interest rates.
  • Be a permanent resident or citizen of the country of application.

The above bullets show the basic qualification parameters which are considered before you are given a loan, however, there are other factors which come into play later on. They include;

  • In case of bankruptcy, are you an eligible party for the financing? well, this is an open question to debate since there are lenders who would still advance you with credit under this condition as long as you demonstrate that you are fully capable of repaying the debts.
  • Having multiple loan balances or have recently acquired a payday loan. These factors also play differently with different lenders but the usual set of the play is that you are becoming a larger risk liability hence you may not make it on the eligibility scale.

It is always rather a disturbing situation when you are caught in financial hardship, so much so that you are forced to apply for financing and in this case a payday loan. A payday loan is a feared lending product since it provides funding which is in low amounts, it charges high rates of interest and further, the repayment period is set at the next payday. Implying that these are in essence the shortest forms of financing and by far the most expensive on the market. The question is then posed to you. Why would you want to be financially destabilized by being pulled into a debt trap with your knowledge when there are other loan types to consider?

Published by Matthew Piggot

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