A larger purchase, such as a new car or a family vacation is pending but you don’t have the necessary change? Then a so-called payday loan can remedy the situation. A payday loan is a loan that is repaid in constant monthly installments and is therefore often referred to as an ‘installment loan’.
Who grants a payday loan?
As the name suggests, a payday loan is only intended for private individuals. It serves the fulfillment of consumer wishes or other private purchases. Not only banks can grant payday loans, but now also private individuals. This is a way of investing, which can sometimes generate high returns.
Regardless of the lender (private individual or bank), a credit check is carried out in every case to protect creditors and debtors. For this purpose, a Schufa query is made and proof of income is requested.
What can a payday loan be used for?
In principle, a payday loan is freely available to the borrower. Exceptions to this are investments in your own company if you are self-employed. The payday loan is most often used to purchase furniture, a car or consumer electronics. A debt rescheduling is also possible. It is precisely these versatile application options that make payday loans a generally attractive product for almost everyone. Another advantage: With private loans, no collateral usually has to be deposited with the bank. The fixed repayment schedule is another advantage of payday loans. As a borrower, it is easier to calculate the installments to be repaid.
Risk of a payday loan
Payday loans are generally not very risky. In general, it is important that the borrower’s financial situation does not deteriorate. When calculating the installments, the lenders and especially the financial service providers make every effort to adapt them to the customer’s financial situation, but it is difficult to take into account all possible scenarios that make it difficult to repay the installments. Unemployment could be such a scenario. For this reason, the payday loan can be combined with insurance. This then saves death, disability and unemployment. In such a case, it is always important to contact the lender promptly.
According to a survey…
According to a recent Krystal study, payday loans are used most frequently (41 percent) to buy a vehicle. It follows the financing of more expensive electrical items such computers, washing machines or televisions (36 percent) and expenses for your own home for a move, for furniture or renovations (16 percent). Debt restructuring comes in fourth place (10 percent). According to the survey mentioned, the other top uses of a payday loan are as follows:
5. Settlement of an overdraft facility (9 percent)
6. Training and further education (4 percent)
7. Other such. Medical expenses (2 percent)
8. Events / celebrations such as Wedding (1 percent)
9. Travel & Vacation (1 percent)
10. Commercial Business expansion (1 percent)
How much can a payday loan be?
As with most other forms of credit, the possible amount of a payday loan depends on the amount of freely available income of the borrower. With private lenders, the maximum loan amounts fluctuate widely, but in most cases they are less than USD 10,000. At the Sparkasse you can effectively receive a payday loan of up to 50,000 dollars from 3.05% pa. You can find more information eg here or make an appointment with your advisor.