Have you ever had an unexpected emergency that required you to have an amount of money that would put your account balance in a deficit and leave you struggling until your next pay check, and you so happened to pass a cashing store and wondered what kind of things happen in a business like that? Well, one thing stores like that do; is write people payday loans. Often people in need of these quick loans are not fully educated about the way they work. The purpose here is to help consumers better understand how payday loans work, and what the benefits of using these services are.
In general, it is extremely easy to obtain a payday loan. One must go to a lender with only a bank statement, personal identification, and have a job. The idea is that a borrower approaches the lender for the amount he/she requires, bearing in mind that the amount should fall in the range the lender is able to borrow, which usually sits between R1000 – R10000. The lender gives cash to the borrower with the promise that the borrower will pay back the loan in no more than two payment periods when they receive their income. When the time is up, a borrower can pay the lender in cash or allow the lender to debit the full amount directly from their bank account.
Typically, payday loans are taken out in amounts between R1000 and a max of R10000. The borrower is charged a fee that can be up to 20% of the loan amount. So for example, you would be charged R200 to borrow R1000 from the lender. Also, since a borrower is not allowed to have more than one outstanding payday loan out at a time, the lender is obliged to run a check through a database to make sure you don’t already have a payday loan. In South Africa, many payday lenders do not charge any interest above the loan fee, so long as the full amount is paid on the agreed date.
The borrower may repay the loan using an extended payment plan. A borrower cannot enter one of these more than once a year. The borrower must agree to repay the loan in no more than four equal payments in a maximum period of 60 days. Interest will not be charged during these plans and the borrower can repay the full amount at any time. If a borrower misses a payment, the lender can request the full amount of the loan to be due immediately. After using the extended payment plan, the borrower cannot get another payday loan for at least 90 days after the loan was paid off. You have the right to use this repayment plan so be sure to request it.
Although payday loans are and should always remain an “emergency only” borrowing practice, these loans come in really handy when you need them most. One is that they are very convenient and easily obtained in emergency situations. For example, if your work truck broke down and you didn’t have the cash to fix it, then you could get a loan to have it fixed. This is convenient because the truck is essential for your job. They are also convenient for people with poor credit history. Payday lenders do not go into a full credit check to make sure you’re able to repay the amount borrowed.
Many people living under the harsh conditions of South Africa’s economy need options like these to assist them when traditional financial service institutions turn the other way when they come seeking for help. Ultimately, including this segment of society back into the operating system is instrumental in improving our economy.