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What Is a Payday Loan? Payday Loans Explained - YouTube
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hi i'm kylie mateo and welcome to
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wealthy millionaire today we're going to
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talk about payday loans but first i'm
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not an accountant or a lawyer so always
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make sure to consult a professional
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before taking any financial advice
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a payday loan is a short-term
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high-interest loan that a lender extends
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based on the borrower's income
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so a payday loan helps you with your
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financial emergencies before you can get
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to your next paycheck
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with a payday loan there's no upfront
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fees or guarantor is required
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as a result these loans charge high
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annual percentage interest rates mainly
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within the range of triple digits
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sometimes going as high as 400 percent
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when applying for a payday loan most
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lenders will request proof of income and
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an active bank account and once you get
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the loan expect it to be deducted from
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your next paycheck
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and a payday loan works for you if you
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have a bad or no credit record at all
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however before applying for a payday
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loan there's a lot that you need to know
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so what we're going to do is go into a
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detailed look at payday loans including
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how they work how much they cost
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and payday loan alternatives to consider
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so let's dive in
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so how does a payday loan work
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payday loans have a simple application
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process and few qualification
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requirements compared to other types of
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loans
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once you identify a suitable payday loan
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lender you can then apply for a loan
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either online or by visiting a brick and
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mortar office as long as you're over 18
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years old
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you also need to have a proof of income
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and an active bank account or credit
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union
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some lenders may also request a social
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security number
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the moment the lender receives your
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request they'll then check your
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qualifications then issue you the loan
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the cash can get delivered to in about
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15 minutes or less
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typically with a payday loan you get
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your funds within 24 hours and you'll be
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expected to settle this loan on your
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next payday mainly within a range of two
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weeks to one month
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in exchange for the loan the lender will
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request a signed check
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or permission to electronically withdraw
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the money from your bank account to
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settle the loan on your next payday
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alternatively you can apply for the loan
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through a brick-and-mortar office and
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the lender may give you an appointment
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to return when the loan is due
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if you fail to pay the loan on the first
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payday it incurs a fee and the cycle
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continues until you settle your dues
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you can also decide to roll over your
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loan to a future
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date for another fee so if you default
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on your loan the lender may report you
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to a credit bureau and sell your loan to
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debt collection agencies
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defaulting on your payday loan
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negatively affects your credit score and
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your credit
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history generally different states have
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different laws governing payday loans so
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this is including the maximum amount you
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can borrow the maximum loan term and
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loan charges
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a direct payday loan is a loan that you
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apply for directly through a primary
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payday lender which makes its own
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decisions about your loan
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there's no intermediary or broker
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involved here
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when you apply through a broker
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they'll provide various direct lenders
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with your information before selling
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your loan to the highest bidder
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brokers are middlemen
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who will connect you with the lender and
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they don't offer the loan themselves
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practically payday loans with a direct
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lender bad credit no guarantor
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are less risky than when a broker is
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involved as brokers share your financial
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information with many people increasing
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the risk of fraud
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direct payday loans are also cheaper
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than those involving brokers
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so how much does a payday loan cost well
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according to the consumer financial
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protection bureau payday loans for bad
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credit with no guarantor and a direct
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lender cost about 15
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for every borrowed amount
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so this translates into fifteen dollars
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for every hundred dollars borrowed so
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for a two-week payday loan the apr can
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be as high as 391 percent
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you fail to repay the loan on the agreed
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day the lender will charge you a late
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payment fee and if you continue to
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default the fee will grow and in the
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long run you may have to pay more in
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terms of interest than a principal
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amount that you borrowed so some
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borrowers have ended up paying 620 after
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borrowing only 375
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payday loans can be risky and can leave
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you trapped in a vicious cycle of debt
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that can be hard to get out of
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so how much can you borrow with a payday
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loan
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the amount that you can borrow on payday
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loans varies depending on your state's
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regulations and your financial standing
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however most lenders allow for between
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300 to a thousand dollar payday loans
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always have it in mind that the higher
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the amount the larger the dent it will
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leave on your paycheck so does paying
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back a payday loan build credit
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well a good number of payday loan
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lenders never report to the credit
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bureau meaning no matter how faithful
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you are at repaying your loans they
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won't help you build your credit
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however if you do fail to repay the
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loans then the lender might report it to
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the credit bureau they can also sell
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your debt to collection agencies so you
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can hurt your credit score
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so what do you need to get a payday loan
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well payday loans are easy to get and
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all you need is proof of income an id
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proving you're over 18 years old and an
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active bank account
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some lenders may also require a social
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security number as well
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so what happens if you can't repay a
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payday loan just like all other loans
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failure to repay a payday loan will
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attract some penalties depending on the
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lender and your state's regulations you
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can be charged a non-sufficient fund fee
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or a late payment fee
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you may also decide to extend the due
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date through a rollover but this will
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still attract some fees so
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failure to pay the loan can also lead to
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bank fees and the lender can also
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forward your case to collection agencies
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or report you to the credit bureau which
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will lower your credit score
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so let's take a look at some payday loan
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alternatives that you can consider
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as you can see payday loans aren't
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really the best option to finance your
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emergencies they can be expensive in the
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long run so it is advisable to consider
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loan options such as interest-free cash
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advance apps
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you consider loans from interest-free
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cash advance apps like dave chime and
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ernin however these apps have specific
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qualification requirements and caps on
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the amount that you can borrow
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you can get some fast cash from an
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online lender or a credit union
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in the form of a personal loan so
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personal loans don't cost as much as
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payday loans in fact credit unions offer
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low interest rates for bad credit
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personal loans but you have to be a
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member before applying for a loan from
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them
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another cheaper way to cater to your
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financial emergencies before your next
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paycheck is asking for help from family
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or friends
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just make sure you have a clear written
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agreement on your borrowing terms and
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how you're going to pay the funds back
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another option is to approach your bank
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and ask if they offer small dollar loans
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some established banks offer small
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dollar loans for emergency expenses
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even if you are hard-pressed for cash
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there are some payday loan alternatives
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that you should really try and avoid so
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these include things like high-interest
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long-term installment loans
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and some installment loans are enticing
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because their repayment periods can
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extend up to 5 years and they don't
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require good credit scores as well
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however
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such loans charge relatively high
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interest rates that can end up costing a
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lot in the long run
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you should also try and avoid auto title
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loans although these are short-term
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loans you'll be required to hand over
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your vehicle title as a collateral so if
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you fail to repay an auto title loan you
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may lose your car
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so here are some frequently asked
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questions
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what is a payday loan well a payday loan
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is a short term high cost loan for small
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amounts repaid on your next payday
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another one that frequently comes up can
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you claim ppi on payday loans
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yes if you feel you are miss sold a
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payday loan by a lender or that you've
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suffered debt due to unfair practices or
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sky-high interest rates you can claim
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payment protection insurance on a payday
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loan
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another frequently asked question how do
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you get a payday loan well you need
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proof of income to end to have an active
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bank account
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some lenders will require your id to
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prove that you're an adult and your
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social security number you can apply
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online or through a storefront
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why are payday loans bad
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well payday loans attract relatively
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high interest rates and if you default
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the lender can report you to the credit
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bureaus which will lower your credit
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score you can also end up paying more
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than you borrowed from the accumulated
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interest and other charges if you
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continue defaulting
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so here's the bottom line
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when you're faced with a financial
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emergency a guaranteed payday loan for
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bad credit with no brokers may seem like
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a good idea
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however these loans may be relatively
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expensive in the long run and may not be
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the best way to address your financial
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emergency
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so you can turn to the payday loan
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alternatives discussed
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to cater to your financial needs and
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once you settle your emergency work on
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building an emergency fund to handle
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unexpected financial needs in the future
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i hope you enjoyed this session i'm
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kylie mattoo thank you for watching
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wealthy millionaire
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[Music]
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