Payday Loans which is also called salary loan or payday advance, is a small and short-term unsecured loan. This loan involves the money given against a predetermined line of credit. Loans relies on the person receiving it having a previous employment or payroll record. There are legislations in place to monitor how the loans are administered, although they vary from country to country and state to state. Some states have set annual percentage rate limits to limit excessive and unreasonable interests.
The loan usually is less than $1,000 with short term repayment demands. For instance, a typical loan of $500 to pay for rent, food or utilities may be considered as a payday advance. You can only be issued with the money if the lender is sure that you will have access to repayment money soon. In the United States, operators of these loans are found in front of stores in low-income neighborhoods.
Who Uses these Loans?
Reports from the community Financial Services Association of America indicates that there are about 18,600 payday advance locations in the United States. They have offered credit amounting to $38.5 billion to about 19 million households. Many customers prefer these loans because they are easy to access and simple to borrow.
Lenders rely on low-income minorities as repeat customers. Advertisements are made on radio, TV and online to target working Americans who find it hard to live paycheck by paycheck. Seven out of ten borrows use the loans for recurring expenses such as utilities and rent, although they are advertised as being helpful for emergencies.
However, most lenders offer check-advance loans, cash advance loans, deferred deposit loans, and post-dated check loans. They ignore checking the credit history of borrowers making the loans easy to get but with a high interest. This is why the payday advance loans thrive in States that don’t have tight borrowing regulations.
How the Loans Work
There is nothing as easy as getting a payday loan. All you have to do is to present yourself to a store with a pay stub, a blank check from your checkbook, and an identification card. The clerk will then offer Payday Loans amount, which might be something between $100 and $500. You will be asked to commit to paying a small interest, which may range between $15 and $100. You may be asked to authorize them to make an electronic withdrawal from your bank account.
However, if the due date arrives and you feel like you can’t repay your loans, you might ask for repayment extension. This plays out as an advantage to the lender who gains more interest in the process. Lenders are required by the lending act to disclose the cost of the loan to borrowers.