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Payday Loans 101: How Do Payday Loans Work?

Payday Loans 101: How Do Payday Loans Work?

How to payday loans work? Learn everything you need to know about the precautions and benefits with our guide to understanding payday loans.

How Do Payday Loans Work?

Payday loans can be a real life-saver. Used wisely they are your knight in shining armor. They’re there to rescue you from financial ruin when all else has failed.

How do payday loans work? Find out how you could get yourself out of an impossible situation with a quick injection of much-needed cash.

Hard Times

Many people have moments in their lives when they’re short of cash. You may well have managed your finances well. But sometimes something unexpected comes up and your budget can be stretched to a breaking point.

Let’s say a heating system breaks down unexpectedly. It could be very cold, and there may be a few more weeks to go until your next paycheck. If you’re already stretched, there could just be no money left to pay for the repairs.

It could be that you don’t have time to apply for a bank overdraft. You may not even be confident that your application will be successful. Your credit cards may also be maxed out.

The Payday Loan Solution

It’s in these kinds of circumstances that a payday loan could be a solution. They’re a quick way to get the funds you need. They’re a stop-gap to enable you to keep your finances on track.

You’ll then repay the loan by the end of the month when you get paid. It’s a potentially life-saving choice for those who have poor credit or no credit history at all.

It’s often possible to get the cash you want on the same day if you can get an online application submitted early in the morning. You’ll need to be sure that you fill in any forms accurately.

How Do Payday Loans Work?

With these kinds of loans, lenders may keep a check from the borrower until their next payday. That would typically be when the loan and any finance charges would need to be paid back.

There are also lenders who offer longer-term installment loans. They’d require authorization to electronically withdraw multiple payments from your bank account. That would typically be on each pay date.

Payday loans are usually for amounts that range from one hundred to one thousand dollars. The maximum will depend on what is permitted in any given state as well as your monthly income. A normal loan term would be around two weeks.

The downside of payday loans is that the interest rates tend to be high. There could also be arrangement fees on top of this. Rates can be even higher in states which do not cap the maximum cost of the loan.

It’s important not to let a payday loan become a ‘debt trap.’ That can happen if you can’t afford the loan and the fees. You might end up repeatedly paying even more fees to delay having to pay back the loan. The debt can then spiral out of control.

Applying for a Payday Loan

Lenders will need your personal details. They will want to know how they can contact you. That usually means that you will need a phone that accepts calls and texts.

Lenders will also want information about your employment status and financial income. They may also want to see bank statements from the past few months. This is so that they can see evidence of the regularity and size of your paycheck.

Before you apply for a payday loan, gather together all this information. If you don’t do this, then you might slow down the whole process.

Lenders often will not carry out a full credit check or ask too many questions when deciding if a borrower can afford to repay a loan. Loans are usually granted based on the lender’s power to collect, rather than on the borrower’s capacity to repay.

Understand Your Credit Score

If you’ve just begun a college course, then you may find that you don’t have a credit history. Some lenders may still allow you to borrow in these circumstances. This will typically mean that the cash must be spent on books or college fees.

If your credit score is poor, you might still be able to get a payday loan. You must not be in a state of bankruptcy and you will require an active bank account. Lenders generally only let you borrow up to a smaller percentage of your income.

Limited Options

You should consider taking out a payday loan only in a time of real need. It shouldn’t be your first or ideal option. To an extent, it needs to be considered as a last resort.

That’s because there are real consequences if you fail to repay the loan. There will be a negative impact on your credit score. This will be a red flag for any future lenders.

Payday loans are not the right way to pay for luxuries you could do without. They’re there for necessities rather than something that you want.

You may want to go on a luxury vacation or buy a new and expensive computer. A payday loan would not be the most appropriate way to make the purchase.

The Costs Involved

It’s very important to read all the small print when taking out a payday loan. Check thoroughly so that you understand what the fees and charges are. You need to be aware of what you are getting into with payday loan.

The best advice is only to borrow the exact amount you’re going to need. It might be tempting to add on a little extra for the treat you think you deserve. This is never a good idea because of the fees you’re likely to have to pay.

Remember that the more you borrow, the more it will cost you to pay the loan back. That’s because you’ll be paying more interest and probably more in fees too.

When There’s an Emergency

How do payday loans work? They can be the lifeline you’re looking for when you have an unexpected expense and need a quick solution. You should always use them responsibly and with care.

Find out more about payday loans here and how online banks keep them safe and secure.

7 Life-Saving Tips That’ll Raise Your Credit Score Quickly

Do you want to raise your credit score quickly? If you follow these tips, you'll see improvement in your score in no time.

7 Life-Saving Tips That’ll Raise Your Credit Score Quickly

16% of Americans have a credit score of below 579. This is the lowest level of the FICO score and is categorized as “very poor”.

A poor credit score can have a serious impact on your personal life and can affect your business negatively as well.

While no one can guarantee that you will hit an exceptional score, there are steps you can take to improve your credit score.

Here are seven tips to raise your credit score quickly.

1. Check Your Report for Errors and Omissions

The very first step to take is to get a copy of your credit card report. This is the only way to know where you stand before you figure out the specific actions to take to make things better.

This is, however, not all you will be doing with your report. Go through it carefully, checking for any error and omissions.

Look for things like a repaid debt that’s been listed as a default or a loan you repaid on time that is not listed.

If you identify any of these issues, move to have them corrected. This action in itself can add a few points to your rating.

2. Negotiate on Outstanding Balances

You will be surprised at how helpful your creditors can be. Unfortunately, if you never ask, you will never find out.

If you are having trouble making payments, make contact with your credit card issuer and communicate this with them.

Most providers have temporary hardship programs you can take advantage of. The benefit of this is that you can have your repayment amounts reduced until you get back on your feet.

Smaller, more manageable installments mean you can pay a lot more comfortably. This is better than skipping payments and having a creditor send a negative report that sheds a few points off your score.

3. Get Added as an Authorized User

This is a great way of giving your credit score an immediate boost. This works particularly well if you are just starting out and have little information on your credit rating.

You do this by getting someone with a high credit card limit and an even greater repayment history. Their card issuer sends them a card with your name on it.

Legally, you are not obligated to make payments on any debt accrued on the card. But its usage reflects positively on your credit score.

The key is finding someone with above board transactions. In a sense, you inherit the person’s positive credit history.

However, not all credit card companies report authorized users. Before you get on it, do your research and find out if it will be reported.

4. Ask Creditors to Delete Late Payments

It’s not uncommon to fall behind on payments from time to time. However, these small mistakes lower your credit score.

If you are in good standing with your creditors, it does not hurt to request them to delete some of the reported late payments. Financial institutions regularly communicate with Credit Referencing Bureaus, and all it would take is a quick phone call on your behalf.

If the request goes through, then you will have fewer negative reports, which will add some points to your credit rating. Nevertheless, try and restrict your late payments to 30 days. Creditors will not report late dues failing in this time frame.

If your issue is forgetfulness, rather than availability of funds, you can have your banker or employer make direct payments if this facility is available. If not, there are numerous software tools you can use to remind you when your payments are due.

5. Old Debts Can Raise Your Credit Score Quickly

You might be eager to forget about your car loan or student loan debts once you make the final payment.

However, as long as you completed your payments promptly, those records may help your scoring. The same is true for credit card debt.

All you need to do is keep these debts on your record. If they were entirely left out, then provide all the information to the credit Reference Bureau so they can use it to calculate your credit score.

Bad payment histories are deleted with time. However, bankruptcies stay on your report for 10 years and late payments for seven years. You don’t have much leeway with these.

6. Watch Your Credit Utilization Rate

Credit utilization is the amount of credit card balance you have compared to your credit limit.

This is the second largest factor affecting your credit score. The first is your credit repayment history.

The more credit you use on your credit card, the further down your credit rating drops. This trend indicates you are spending a significant portion of your income to repay debt, which makes you likelier to default on payments.

The best credit utilization is 0, which means your credit card limit is untouched. This defeats the purpose of applying for a credit card in the first place.

As a rule of thumb, keep your credit utilization ratio at 30%. This means using less than 30% of the credit limit availed to you. Anything above this can cause your rating to drop.

Under the FICO system, people with the highest scores have a utilization rate of 7%. The lower your utilization, the better.

7. Jump on Score Boosting programs

The average age and number of accounts you have held are an important consideration in evaluating how you handle debt.

This tends to disadvantage people with a limited credit history.

UltraFico and Experian Boost allow people with limited credit histories to puff it up using other information.

Experian requires access to your online banking data and allows Credit Referencing Bureaus to add utility payments to your history.

In the same way, UltraFico allows you to give permissions for savings and checking accounts to be used alongside your report when calculating your credit score.

Consistency Is Key

All in all, while it is possible to raise your credit score quickly, expect a few bumps along the way and allow yourself some time.

At First Financial, we understand that while you work on your credit rating you might still need help from time to time. No matter your credit score, we have a financing solution for you. Contact us today for more information.

3 Ways Online Banks Keep Cash Advances & PayDay Loans Safe & Secure

Offline banking

 We bet that, ten years ago, you had at least 3 friends who proudly refused to submit their credit card numbers to online stores like Amazon.com. YOU may have been among them!

We also bet that—today—these same people order all kinds of clothes, books and electronics online. That fact that, back then, they were too careful, too “smart,” to shop with credit online is a distant memory. They may not even admit to being so short-sighted!

These days, people willingly upload all kinds of personal information. The magic of ever-improving “encryption” and other tools enable one consumer to interact with a store on a one-to-one basis, just as if they were standing right at the Macy’s counter. These days, more and more people, too, are turning to cost-effective, convenient online banking for their financial well-being.

Online Banking for Cash Advances and PayDay Loans is Just as Secure as Offline Banking

Because some are still a bit leery of banking over the internet, we’d like to reassure you that even for cash advances and payday loans, banks utilize extensive protections to keep your banking and personal information safe. The following four measures keep critical details private.

Read these to ease your mind about the safety and security of obtaining a cash advance online through your computer or even your smart phone using a cash advance app.

  1. Encryption: turns the written information coming from you (the browser software installed on your computer) into a code that only our online banking technology can crack. The minute you sign on to our financial institution, the software on our end prompts your browser software to establish a “secure session.” Our Cash Advance App uses “banking level encryption” which just means the code is much more difficult to decipher than most. In fact, our 128-bit encryption is at the highest level of security currently allowed by U.S. law.
  2. You stay in control because you can monitor whether or not security measures are working while you’re interacting with the site. Your browser tells you information is being encrypted with either a closed padlock or a key symbol. These symbols generally appear on the bottom of your browser screen.
  3. Online banks have whole teams of internet security professionals running audits to ensure encryption is functioning every hour of the day.

When all you need is a checking account, an email address, an internet connection via smartphone or computer, why not transact your cash advances and payday loans online? Once you are approved, you can handle the details of your cash advance or payday loan from the comfort of your home or office, where you have time to think and review your financial documents if need be.  Online banking is open 24/7, too, making it convenient for you to get cash when you need it and set up the next day for success!

Consumer Advocates: Banks Bringing Back Payday Loans

Although North Carolina outlawed payday lending over a decade ago, the state is again seeing the short-term, high-interest loans — this time from banks. Alabama-based Regions Bank offers a product called “Regions Ready Advance,” which lets consumers borrow up to $500 by pledging their next direct deposit. “If they weren’t a bank, they wouldn’t be able to offer this product in North Carolina,” said Chris Kukla, senior vice president at the Center for Responsible Lending (CRL). Kukla says the effective interest rates for Ready Advance loans could amount to 365 percent annually. However, the bank says that the product is essentially a small-dollar line of credit and does not fit the term “payday loan.” North Carolina allowed cash advance from 1997 until 2001, but lawmakers passed legislation that authorized the store-front shops to expire. The fees, though usually small, amounted to annual percentage rates that exceeded North Carolina usury laws. Regions Bank began offering its Ready Advance product 18 months ago, essentially breaking a de facto embargo on the practice. SunTrust, a much larger bank, is considering a similar product. Fees for payday products were typically $16 for every $100 borrowed, compared to Regions’ Ready Advance product, which charges $10 per $100. Although that seems like a small amount, CRL says that it amounts to an effective annual percentage rate of 365 percent. Kukla said that consumers have better options, such as a low-cost, small-dollar loan from the N.C. Employee’s Credit Union, which charges only a few dollars upfront. Across the country, regulators like the Consumer Finance Protection Bureau are noticing this trend of bank products that are similar to payday loans, but most banks operate under state banking laws rather than federal regulators

Groups Drop Lawsuit to Get Payday Loan, Minimum Wage Initiatives on Missouri Ballot

Two Missouri groups confirmed that they are abandoning a legal challenge to a ruling that they did not have sufficient signatures to get a payday lending initiative and a minimum wage measure onto the November ballot. Last month, Secretary of State Robin Carnahan told Missourians for Responsible Lending and Give Missourians a Raise that they failed to collect enough signatures to make it onto the ballot. The organizations decided that legal hurdles posed by “the payday lending industry, their allies and their lawyers” were too high to overcome before the September deadline. The payday lending measure would have capped annual interest rates and fees for the loans at 36 percent, down significantly from the average of 445 percent. Rev. James Bryan — treasurer for Missourians for Responsible Lending — said supporters of the ballot measures faced harassment, dishonest ad campaigns, fake petitions in the field, and an “interminable legal process.”

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