We understand emergency expenses may come up and you need to stay on track with your bills. You’re considering different payday lenders because you need to borrow money until your next paycheck. Payday loan lenders have a negative reputation but we guarantee that better alternatives exist and some have your best interest in mind. At Possible, we believe every American should have access to financial services and assistance. If you’re not familiar with how payday loans work, we want to provide you with resources so you can make the best financial decision for yourself.
Payday loans, also known as cash advances, are short-term, low-balance, high-interest loans intended to hold you over until your next payday – this is where the name comes from. It’s meant to be a form of easy cash, albeit having a higher APR (annual percentage rate) than personal loans, credit cards, and other high credit score products. Usually, payday loans and short term loans have a loan term of less than 3 months because these unsecured loans are meant to be paid back in a very short period of time. There are many loan options to choose from and receive fast cash. You may not even need to leave your living room to apply for a loan – there are in-store and online payday loan applications available. Take some time to research what’s available in your state. Ideally, it’d be great if you had a friend or family member that could help lend you money to cover your emergency expenses, but this is not possible for everyone. Fortunately, you’re not alone because many households have taken out a payday loan.
The Pew Charitable Trust estimates that 12 million Americans take out a payday loan each year. Payday loans are advertised to help with unexpected, emergency expenses by the borrower but the study found 7 out of 10 borrowers use the money for regular, recurring expenses such as rent or utilities. The Consumer Financial Protection Bureau (CFPB) became concerned about people getting trapped in a cycle of debt so they’ve issued regulations on payday loans such as the number of loans a borrower can receive. “For millions of Americans living paycheck to paycheck, seeking out a loan in a time of need shouldn’t end in financial disaster. The rule is an important step that starts the process of ending the nightmare of spiraling debt for so many consumers,” says Michael Best, director of advocacy outreach at Consumer Federation of America.
The loan amounts are small and many states limit the size of a payday loan. The most common loan limit is $500 although the limits may range above or below this amount. Your payment will typically be due in one payment on your next payday or when you receive another income source such a pension or Social Security. This is a difficult option because you’ll be paying back the loan and the finance charge in a short period of time. Many borrowers end up paying more in fees than they actually received in credit. Both offline and online payday lenders have access to your bank account to ensure that they’re able to collect from your paycheck before other bills are due. If the payment isn’t paid in full on the first payday, a new finance charge is added and the debt cycle continues. A debt cycle is when a person cannot pay back their debt and continuously borrows or extends out their debt to prolong paying it back. Be careful to not get yourself in a debt cycle. There are payday loan and cash advance options where you can make installment payments instead.
You may have heard about a three-month payday loan option which is more like an installment loan. A three-month payday loan would provide a three-month loan term for you to make installment payments. If you’re searching for online loan lenders, you’ll find that lenders like Possible will market the loans as “installment loans.” There are many types of installment loans – in fact, mortgage (for real estate or homes) and car loans (for vehicles) can be counted as installment loans because you repay back a portion of your loan in fixed amounts spread out over time. However, most states have laws in place that won’t allow you to take out a three-month payday loan because there’s a limit on how long a payday loan can be active. Some lenders will roll over your loan payment to go around the term limitations. A loan rollover is when you pay the interest and fees on your loan’s due date. The lender allows you to hold onto your original principal and issues your loan new terms and due dates. Trying out an installment loan allows you to make smaller payments instead of a lump sum on your next payday. The benefit of an installment loan is the payments due are predictable and makes it easier for you to budget your loan payment each month. Possible is a payday loan alternative and will allow you to make your payments in smaller, more affordable installments.
A potential drawback for installment loans is you can’t borrow more than you were originally approved for and you can’t borrow more when you have amounts outstanding with your lender. In order to receive more money, you will need to pay off your current loan and then reapply for a higher amount. Possible includes a loan amount selection feature in the mobile app to let us know how much you’d like to apply for. This amount isn’t guaranteed but it gives us a target of how much you’d like to borrow.
It’s not uncommon for the annual percentage rates (APR) to exceed 500% or even 1000%. The annual percentage rate is calculated by ((principal * 365) / term) * 100. The average APR for a payday loan or cash advance is 391%. State regulations will determine how much a brick and mortar or online payday lender can lend and how much interest they can charge. With Possible, we offer consumer-friendly borrowing fees between 150 and 200%. The fee will vary state by state so we recommend downloading our form of payday advance app to find out how much the specific borrowing fee will be.
Make sure you do some research and see what loan options are available in your state. There are limited borrower qualifications to receive instant cash. Most payday lenders require borrowers to have a valid ID, an active bank account, and proof of income. Be sure to use reputable lenders who will protect your information, are not susceptible to hack, and abide by federal and state law. Employees at payday lenders will also have access to your information so go with a lender you trust.
Your ability to repay the loan is often not considered in the loan application process. Be careful not to get into a debt cycle. You’ll need to understand your finances by knowing how much income you’re bringing in and where all the money goes. Many borrowers can’t afford the loan payments and end up paying late fees to delay their payment date or refinancing the debt until they end up paying more than the original loan amount. The CFPB found that 80% of payday loans are taken out by borrowers within two weeks of repayment of a previous loan. At Possible, we want to help alleviate financial stress for our customers by never charging a late fee. We understand financial hardships happen and want to assist you during those times.
Our online and mobile loan platform requires an ID, SSN number to verify your identity, and an active checking or savings account that received at least three months’ worth of income. Possible has both an iOS and Android app and you can download the Possible app on the respective app store. Even though we like to see at least three months’ worth of income, we may be able to work with you if you opened up a new bank account and have at least a month’s worth of income. We recommend you make a minimum of $750/month, have a positive bank balance – the higher the balance, the better – and no recent overdraft fees. The loan decision is based on a variety of factors based on your bank data. We do our best to not over-lend to customers, which makes it hard to repay and causes overdraft fees. Due to state regulations, today, we’re only available to Washington, Idaho, Utah, Texas, Ohio, California, and Florida residents at the moment. It takes time to expand into a new state but we’re working on it. If you select a state we don’t service, we will put you on the waitlist to get notified once we are available in that state. Please contact our customer service at [email protected] if you have any questions about the process.
Once you’re approved for a loan and accept your loan agreement, you are given the option to make smaller installments. Most payday loan lenders can provide you with instant cash, but the payment is due in a lump sum, making it difficult to pay back. We understand life happens and if you’re not able to make a payment on the scheduled date, the app provides a 29 day grace period for you to update your payment dates and make a repayment within your grace period.
Any payments that are past the 29 day grace period is considered late to the credit bureaus. Possible is bound by federal law to report accurate information to the credit bureaus and we won’t be able to amend late payments. The late payment will negatively impact your credit score until it’s paid off. We encouraged to pay off your cash loan on the originally scheduled date, even if your cash flow is getting a bit stretched. In addition, outstanding payday loan debts can can limit you from further borrowing from payday lenders depending on what credit checks lenders use and regulations within your state. In states like Texas, there have even been payday lenders and financial institutions who file criminal charges for a breach of contract or fraud against those who can’t pay back. If this happens to you, please contact legal counsel or attorneys in your area to understand the law the get the right advice for your situation.
You may be worried about not qualifying for a loan because you have a poor credit score. Luckily, having a good credit score isn’t required for payday lending and especially for companies like Possible. During the application process, Possible will perform a “soft pull” on your credit score for fraud prevention and identity verification. Soft pulls will not impact your credit score and we do not base our loan decision on your credit score. In addition, check out other loans that don’t require a credit check.
Most payday and short term loan lenders do not report to the credit bureaus so it won’t help you build credit. Possible reports to all the major credit bureaus including Experian, TransUnion, and Equifax. We report the status of all loans at the beginning of the month for payments made the previous month. This is done on purpose to give you a chance to catch up in case you missed a payment. Each credit bureau will process our reports at different times so you may not see changes to your credit report immediately.
The best way to build your credit score is to make sure your payments are made on time. This applies to payday loans, student loans, credit card payments, auto loans, and rent. You can also look into credit-builder loans to understand whether that’s a fit for you.