Pay Day Loan

A pay day loan is, simply put, a small short term loan intended to cover your expenses until your next payday. These loans are sometimes called paycheck advance, payday advance, or cash advance. It can be a bit confusing to call it a cash advance, however, as typically, a cash advance is cash borrowed against a prearranged line of credit like a credit card. Legislation regulating pay day loans varies widely from country to country and within the United States varies widely from state to state.

Sometimes there are strict usury limits that limit how much interest any lender including those who provide pay day loans can collect. Some places outlaw pay day loans. Other places, on the other hand, hardly regulate pay day loans at all. Pay day loans are extremely short term so the difference between the expressed annual percentage rate and the effective interest rate can often be quite substantial. If you are considering a pay day loan, you must find out whether the interest is expressed as annual percentage rate (APR) or effective annual rate (EAR).

Pay day loans can be gotten from retail lending outlets. The borrower visits the lending outlet and takes out a small cash loan, and payment is due in full at the next paycheck. The term is typically two weeks. IN the US, finance charges on pay day loans are usually in the range of 15 to 30 percent of the amount for the two week period. This translates to an APR of 390 to 780 percent if it were a long term loan. Generally, the borrower will write a post dated check to the lender in the full amount of the loan plus interest. When the loan is due, the borrower returns to pay in person. If they don’t, the lender can put the post dated check through or electronically withdraw money from the borrower’s bank account to pay for the loan.

If the borrower doesn’t have the money to cover the check, the borrower may be looking at insufficient funds (NSF) fees from their bank, as well as the cost of the loan. The loan may incur additional fees and an increased interest rate as a result of failure to pay as well. If customers cannot pay, an extended payment plan may be available. Some states require extended payment plans by law.

Payday lenders require borrowers to bring pay stubs to show that they have a steady source of income. The borrower must also provide recent bank statements. Individual companies may have their own criteria, however.

Payday loans are often marketed online. These work by having the consumer fill out an online application with their information and a copy of a check and other info.

If you liked this article, you might want to sign up for my FULL RSS FEED. Then, you would get my daily post in your email and can read it at any time. To subscribe, please click HERE..