Payday Loan Companies
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Payday loan companies are any of those non-banking financial companies which give short term loan to borrowers. The laws in different states govern these companies. However, in some states, payday loan companies are totally banned.
These financial institutions may operate online or with a brick and mortar office. The number of individuals who seek payday day loans is about 19 million every year in the US alone. This figure was published in a report by finder.com.
Another report finds that up to 12 million young adults use payday loans either from an online dealer or a storefront in their respective states.
Who or what are these payday loan companies? We explain everything about them in this post.
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Payday loan companies explained
As briefly mentioned above, payday loan companies are typically non-banking financial institutions. This means that they operate independently from the banks in the United States. These companies usually have their own terms and conditions that cover loan application, loan amount, interest rates, and repayment terms. The one thing that is similar between these companies is that most of them have a next business day deposit policy.
Most of the payday loan companies do not take your credit score or your credit history into account. This is only one of the main reasons why they are so popular. In the US alone, there are about 23,000 payday loan companies, both online and offline.
However, payday loan companies are strictly under the legislation of the state laws. The state-wise legal status pertaining to payday loans and lenders can be viewed here.
These companies do not require you to put down collateral, which makes it very attractive to young adults, even those who are in college. There are some requirements for the loan application to be approved, which we will tackle a bit later in the post.
The common requirements for payday loans are:
You should –
- Be at least 18 years or older
- Reside in a state where the payday loan is not banned
- Have an active bank account
- Have an identity card
- Have proof of income that is above $800 or an alternative income document in case you are unemployed
Difference between a direct lender and connector?
If you are on a quest to secure a payday loan, it is inevitable that you come across lenders and connectors. But what is the difference between these two? Keep on reading to find out.
Main differences between a direct lender and connector are:
- A direct lender can get you the money a lot quicker. It is because there is no middleman in between them and the borrower, in this case, you.
On the other hand, connectors can take more time to secure the loan for you. They work with a number of lenders at a time.
- A direct lender works directly with their clients, so it eliminates the need to charge a broker’s fee. This is not the case with connectors.
But there are a number of connectors also do not charge broker’s fees as they get the money directly from the lenders.
- A direct lender will almost always pull a hard credit pull on your credit score and credit history. This can be devastating for your credit history, especially if your credit score is not in good shape.
A connector will also run a check on your credit score. But in most cases, only a soft credit check is performed, so it doesn’t affect your credit history in any way.
- A direct lender also does not have the flexibility to offer you the loan across different states. In this case, a connector takes the upper hand as they can connect you with the best loan irrespective of your location.
Advantages with payday loans
- They offer you more flexibility
- They get approval almost instantly
- They are easily accessible
- Having a good credit score is not a requirement
- You can use the loan for whatever purpose you want
- You don’t have to put down collateral
Risks with payday loans
- They come with very high-interest rates
- The risk of getting scammed is also high
- If the loan is not repaid on time, it can hurt your credit score
- The chances of paying additional fees are high as well