Direct Payday Loans: What Are They, Who Uses Them & Why 

If you’ve ever faced a financial emergency, you know they don’t always come at a time when you’re ready to handle them. Sometimes, your car needs urgent repairs just days after you spent all your savings on a medical bill.

Unprepared and out of options, you might consider borrowing money to help you cover the bill. It’s a decision that plenty of people make every day. But what makes people search out direct lenders for payday loans? Keep scrolling to find out.

What is a Direct Lender Payday Loan?

A payday loan — or cash advance — is a short-term, small-dollar loan. They’re available both in-person from storefront financial institutions and online from digital lenders.

They tend to grant you around $500, which you must repay by your next payday. This generally winds up being around two weeks from the time you receive your money.

This short term makes them different from installment loans. Although an installment loan may also grant you the same amount of money, it’s due back over a series of payments that fall over multiple weeks or months.

When it comes to the “direct” in their name, it describes your relationship with your lender. Direct lenders for payday loans are the sole company to facilitate everything to do with the experience. That includes the initial underwriting, disbursement of funds, and facilitating your repayment.

No other financial institution is involved during these steps, so you work directly with your cash advance lender.

What Are They Good For?

A cash advance is a convenient backup when you’re in a financial jam. They’re marketed as a way to cover unexpected emergency expenses that you can’t afford on your own, such as urgent auto and home repairs, medical bills, or a surprise bill.

They aren’t designed to help you with expected expenses or recurring bills, even if you didn’t anticipate them. The average cash advance comes with high rates (some with triple-digit APRs), so their cost is unsuitable for regular, long-term expenses.

Who Uses Them?

Just 5.5 percent of U.S. adults took out a payday loan between 2007 and 2012, according to the Pew Charitable Trusts. Its report on these cash advances reveals most borrowers are white females who fall between 25 and 44 years of age.

However, the following factors increase the chance you may need to take out a cash advance in your lifetime:

Education: People without a four-year college degree are more likely to borrow.

Income: Earning less than $40,000 a year increases your odds, too.

Household: Renters have a higher chance of borrowing than homeowners.

Marital Status: Separate or divorced individuals have a higher likelihood of borrowing.

Why Would You Use a Cash Advance?

While a cash advance may be a convenient option when you’re in a financial jam, its high fees and short terms can make it difficult to repay on time. After weighing the pros and cons, people may wind up turning to these short term options for a variety of reasons.

An urgent need for cash: Many cash advances have a quick turnaround, making them ideal for pressing financial issues.

Living paycheck to paycheck: When you don’t have any breathing room in your budget, you don’t have extra cash or savings to cover an expense on your own.

Bad credit: Bad credit can disqualify you from other borrowing options. However, many direct lenders for payday loans may still grant you funds despite your score.

Bottom Line

You may never need to borrow this financial product, even if you share all the same markers as the average borrower. But now that you know what they and how they work, you can tell if it’s something that you’ll want to use in an emergency.

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