Are Payday Loans Secured Loans?

Are payday loans secured loans?The reason people seek out payday loans is because they don’t really have anything to put up as collateral, or they already have their things tied up by other lenders. For example, there are car title loans, but if you’ve already got a car payment, or already have a lien on your car, you won’t be able to use it to secure a loan. The same thing goes for anything else of value that you have, such as your home, a boat, or anything else you could secure a loan with.

The only thing a payday lender has to secure the loan is your agreement to pay them back on the day it’s due. That’s why they make their case that they are a high risk lender, because they are basically giving their money out with no real guarantee that they’ll get it back. They don’t have the same recourse that a bank does if you don’t make your mortgage payment, or a loan company does if you don’t make your car payment. They are basically banking on your word, and the fact that you have a job.

They are assuming that you are going to keep your job, at least until your next payday, and at such time they are assuming that you’ll either bring their money back to them if you borrowed from an offline lender, or that the money will be in your checking account if you took out an online loan.

Are Payday Loans Secured Loans? Answer: No.

So you’d think that since there isn’t anything securing the loan that they would have a lot of people blow off their payday loans and cause a big hassle. You’d be surprised that most payday lenders would have to admit that the majority of lenders pay their loans back on time. It’s usually in the 90% or higher range for people paying their loan off on time, and most of the people that don’t make arrangements to pay it off soon. There is a “last bridge” effect in place, and people know that if they start burning payday loan bridges they will quickly be out of options.

Better Rates with Secured Loans
You can typically get a better interest rate when you put something up for collateral, because then the lender knows you’re more highly motivated to pay them back, and that they can collect from your asset if you default on the loan. The only problem is that when you are thinking of getting a payday loan, you’ve probably already done the math, looked around and realized that you don’t have anything left to put up as collateral. That’s why you may just have to suffer through the higher rates they charge, bite the bullet, and promise yourself not to get into a financial jam this bad again.

Why Do Payday Loans Do It?
You might also wonder why payday loans loan money to people without anything backing the loan. It seems crazy to give a total stranger hundreds of dollars when there’s no real guarantee you’ll get it back. You might start thinking that these lenders are incredibly friendly and just like helping people out, or incredibly stupid and just don’t care about money. But they are neither. They cover their risk by charging the high rates that they do, which allows for a certain percentage of loans to never be collected. So basically you are paying for their risk by paying the high fees, and if you always pay your loan off on time, you are not contributing to the reason why payday loans are so expensive.

So when you take out a payday loan, don’t worry about them asking for anything of value to secure the loan. You just need to have a regular source of income, even unemployment income with some lenders, and they will use that as proof that you have the ability to repay the loan. What they don’t want is to lend you money and you tell them that you can’t pay it back because you lost your job, or quit you job and otherwise don’t have any additional source of income.

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