What is a payday loan?
A payday Loan, also known as a payday advance, salary loan, payroll loan or short term loan, is a small short-term unsecured loan. In other words, you take a loan for the period of a month. After you get paid, you pay the entire amount back that you borrowed, hence the name “Payday loan”. In some cases, a payday loan can be structured in such a way that they are repayable in small installments over a longer period of time.
How much can you borrow?
Most commonly, a payday loan can be up to R3000 depending on your monthly salary. It can even be as low as R500 in most cases, also depending on your salary. Some loan providers will give a loan at a minimum of 5 days before payday and it can go up to 5 months to pay it back. There aren’t usually repayment charges, but there are fees for setting up the loan as well as interest, which is usually calculated daily.
Are they expensive?
Yes, but that doesn’t mean they’re more expensive than traditional alternatives, as long as you pay them off as expected. Borrowing R500 for 5 days with Wonga is likely to cost you less than your bank charges for an unauthorised overdraft.
But, charges will quickly mount up if you miss your repayment or decide to extend or roll over the loan. What started off as a small loan can grow rapidly once the extra interest and fees are added for missing a payment.
How quickly do they add up?
Let’s say you took a loan for R2000 over a period of 14 days. By the end of the 14 days, you’ll have to pay back about R2350. Should you miss a payment you can expect a late payment charge of R200. But, if you contacted them and asked that the amount roll roll over till the next month, you’ll ow R2750. Should you not be able the pay it back for a second month, you’ll end up with R1700 interest for a loan of R2000, so it’s important to stick to your payment agreement to avoid any extra charges.
Can anyone apply for a payday loan?
Almost anyone can get a payday loan as long as you are employed, have a decent credit rating and are not blacklisted or under debt review. Take note that some documentation will be required to make sure you can afford a payday loan. After all, no one can give you a short term loan if you’re not in a position to pay it back and it would be a big mistake to lie about such matters. Should you not qualify for a payday loan, it might be better to apply for a personal loan instead. A personal loan might be more affordable in the long run than a payday loan, but as always the choice is yours.
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