Payday loans have been around for some time. Typically, a payday loan is for employed borrowers who need advanced funding until their next paycheck, which is usually two weeks from the date of the loan.
This arrangement posed unique problems for those who were no longer employed but received a less traditional income such as SSI, disability, or other government benefits. This type of income, although steady, is usually paid only once per month.
Some payday lenders in the past did not set up funding for these types of income situations. This left some borrowers who were receiving government benefits or alternative forms of income without many options.
Payday loans are meant to be short-term loans paid against future income. They provide funding for emergency situations such as vehicle repairs, bill payments, and other unexpected expenses. They are not usually set up for long-term repayment.
Pros & Cons
There are certain advantages and disadvantages to using this type of financial tool. One of the advantages is that borrowers are not subject to the strict lending requirements of a traditional bank. The only information that a borrower needs to provide for this type of loan is a valid form of identification such as a driver’s license or passport or other government-issued ID, proof of income, social security number, an active bank account, and sometimes references.
The funds are usually given in one to two business days and are direct deposited into the borrower’s bank account. Also, the advantage of this type of loan is that borrowers do not have to have perfect credit.
A disadvantage of this type of borrowing is the higher interest rates being charged for this type of loan. Sometimes interest rates can be over 600% APR in some states.
Depending on where you live, some states have banned payday lending in their state due to the predatory nature of some in the industry.
Many states now have laws in place to protect borrowers from this type of predatory lending. Payday lenders have since come into compliance and also opened the door for individuals who receive alternative forms of income, this includes payday loans for ssi recipients.
If you are receiving government benefits you can apply for a payday loan under an installment agreement and pay over a specific amount of time such as 6 months to 1 year. The interest rates charged are still a little higher than with traditional loans or credit cards, but those who receive benefits have a longer time to repay the loan.
This is good news for those who find themselves in need of emergency funding and who also don’t have a good credit rating for traditional loans.