Using Payday Loans During the COVID-19 Pandemic

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On a typical day, paying bills can be a challenge for most people and households. Unfortunately, with the COVID-19 pandemic, the financial situation has worsened, emphasizing the need for most people to obtain emergency cash.

Payday loans offer you access to short-term funds, although usually at a higher interest rate. Most payday loans are usually between $500 – $1500 or less. Also, your payday loan is due when you receive your monthly paycheck.

One could easily imagine that the pandemic will be useful to the business of payday loan lenders. However, the opposite happened, as fewer people took out payday loans. This can be attributed to a number of factors.

First, in the heat of the pandemic, most states made it easier for households to access less expensive loans. In fact, the Small Business Administration (SBA) launched a Paycheck Protection Program to ensure businesses could access loans to stay afloat and keep employees on the job.

Also, with federal relief and the child tax credit available to many people, as well as other job benefits, the need for payday loans has decreased. However, many financial experts believe that there may be an increase in demand for payday loans very soon. Although there are fewer lockdowns and restrictions, COVID-19 is still in full swing. Therefore, the 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’ll also read about the pros and cons of payday loans in these circumstances and determine if it’s the best cash advance option for you.

How to get a payday loan during the pandemic

For starters, 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 structure of loans at different levels. Therefore, you may need to check with your state’s loan policies to see if payday loans are allowed.

If so, you can visit payday loan stores near you or access a lender app from your mobile device. Applying for a payday loan can be done through a lender’s application form. Since payday loans are unsecured, you don’t have to worry about collateral when applying for a loan.

Applying for a payday loan in the pandemic, or any period, requires that you have a current job. You will need to submit your pay stub and authorize your lender to transfer the amount electronically or you can write a postdated check for that amount.

Common Terms for Payday Loans

Payday loans are included in a special form of financing, as they differ from most conventional loans. These are the common loan terms to expect when taking out a payday loan during this pandemic.

  • A short payback period: Most people refer to payday loans as a two-week payback loan. This is because the time window for payment is very short, usually extending to no more than two weeks.
  • High interest rate: The interest rate calculation for payday loans is best done using the annual percentage rate (APR). Most loans have an average APR of 400% or more, which makes them very expensive.
  • Single payment: Unlike most loans, you cannot pay your personal loan in installments. Generally, all payments are completed at once on the next payday.

What happens if you can’t pay your payday loan?

Most of the time, borrowers are unable to complete their payday loan payment. Typically, the lender would try to cash the check or make an electronic transfer. If you have an insufficient balance, your bank will charge you an overdraft each time it occurs.

If you continue to be delinquent, lenders may call incessantly, contact family members, 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 your 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 afford the loan.

In extreme cases, after an extended period of default, the lender may request a settlement that requires the borrower to pay less than agreed. Since the interest is often exorbitant, lenders lose nothing. However, this can 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 types of payday loans without the drawbacks of payday loans.

  • Bad credit loans: These loans are ideal for periods of emergency, especially if you have a low credit rating. They are secured unlike payday loans and 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 for APR, they’re less expensive and aren’t likely to throw you into a cycle of debt.
  • Loan Circles: Instead of getting payday loans with ridiculous repayment terms, you can pool resources for family or friends with little or no interest.
  • Pawn Loan – This type of loan requires you to put up 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

While payday loans are undeniably helpful for emergency financing, they leave you with more than just debt to pay off. that’s why many financial experts advise borrowers to avoid loans. If you are already in one and the pandemic is affecting your ability to pay, you can take one of the steps recommended in this article. Otherwise, you’re better off looking for alternative payday loan options.

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