A payday advance loan is designed to help people in an unexpected tight spot for a short period. Some people will just allow their bank account to be overdraft instead of taking out a payday advance, but this could be a mistake.
While it is convenient to just allow the bank account to go overdraft, which means you spend more than you have in your account, it can be costly and is often more costly than a payday advance loan. When a bank allows you to spend more than you have in your account, it is essentially giving you a short-term loan to cover you until you rectify the situation.
One way in which an overdraft is more costly than a payday advance is the vast majority of banks charge a straight overdraft fee no matter how much you are overdraft, even if it is a few cents. A payday advance fee is based on the amount of the loan, so a small loan will mean a smaller fee.
Also, if you are overdraft on your account, every transaction after the overdraft will result in a separate fee for each transaction. Many banks will enter the transactions in such a way so that you will pay the most fees.
If you take out a payday advance to cover you during a pay period, that money will be deposited into your bank account and you can use it at multiple places without incurring extra fees.
A payday advance won’t hurt your credit like a bank overdraft will
Another thing to consider is the impact on your credit report. Having overdraft fees will definitely have a negative impact on your credit report. It will make you look as though you handle money poorly depending on how many overdrafts you have.
It also could hurt your chances at borrowing money from the bank in the future, since they will check the history of your account.
A payday advance can have a slightly positive effect on your credit report if you pay it off on time. It is only a small effect because it is a relatively small amount for a short period of time. However, this still is much better than the negative effect of incurring a bank overdraft fee.
While a payday advance may not automatically cover you like an overdraft, a payday advance is still very convenient. In fact, many lenders allow you to apply online, and, if you qualify, will deposit the money directly into your bank account the morning of the next business day.
Qualifying is not difficult, either. Payday lenders will not do a credit check. Most require the applicant to have a steady income that can be proven, usually with a paycheck stub or bank statement, and of course a bank account that the money can be deposited to.
Because lenders do not do credit checks, which can be costly and time-consuming, they assume more risk. This added risk is why payday loans have much higher interest rates than standard loans or even credit cards.
This is why it is important to pay them off on time. So, when you do take out a payday advance, have a plan in place to repay it.