Payday Loan; A new Way to Borrow Money
There is an affordable type of financial loan that is being offered in the market today and this type of loan is referred to as payday loan. Payday loan is a short-term loan whose amount usually ranges from 100 to 1000 dollars. This type of loans normally have three distinct features namely that the loan amount is relatively small, full payment is usually due on the borrowers next payday and borrowers are obliged to give the lender or lending company access to his or her checking or ATM Account or in some instances require the borrower to provide the lender a postdated check for the full amount of the loan plus interest and finance charge. Payday loan can also be categorized as short term small loan and although the loan has basically three features, lenders or the lending company can include a variation of the loan like including an interest-only payment, lump sum payment and/or loan renewal of the loan. The cost of the payday loan (basically known as “finance charge”) may range 10 to 30% for every 100 dollars depending on the loan policies of the lending party. However there exist laws that limit the interest rate and financing fees lenders are allowed to place on payday loans.
Small lending entities such as pawnshops and other retail outlet are the normal source of payday loans. The loan amount is immediately issued to the borrower upon applying from the outlet. There is no extensive credit or background check on the borrower and it is only the loan contract that the borrower have to sign that will indicate that the borrower must repay the loan in full once he or she has received his or her next paycheck. It is therefore necessary for a person to have a steady job to be able to apply for a payday loan. The drawbacks of a payday loan are the more than normal interest rate and high financing fees. The usual guarantee that the payday loans will be re-paid is the borrower’s obligation to issue a postdated check to the lender (upon receiving the cash loan) which includes the principal amount, finance charge, interest amount and other incidental fees of the loan. As soon as the payment due date arrives, the borrower is expected to go back to the payday loan outlet and pay in cash the total amount due on the loan. The lender in turn will return the postdated check earlier issued to him but in the event that the borrower does not arrive at the appointed time, the lender has the right to cash or deposit the postdated check. There will be additional surcharges and a possible lawsuit in the event that the postdated check issued to lender bounces.
Payday loan is also a type of personal loan but with a much higher risk and to lessen this risk, payday lenders require the borrower to show proof of steady income and this usually comes in form of a multiple payment stub, business license (if the borrower is a businessman) or employment certification from the borrowers employer.