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What is Payday Loan?



Payday loans are small sums, short-term, high interest loans. They are targeted towards those individuals who need a small amount of cash for a short period of time. It is the opportunity for individuals to get access to quick cash without the need for extensive credit checks. Those individuals who cannot attain credit cards, have no friends or family to loan them money, and cannot procure an advance from their employer, often have nowhere to turn for a bit of extra cash to fill a very short term need.



Pay Day loans has a variety of titles including; cash advance loans, check advance loans, quick cash loans, post-dated check loans, and deferred deposit check loans.



The borrower writes a personal check payable to the lender for the amount they desire to borrow plus the "loan fee". The lending company then gives the borrower the amount of the check minus the "loan fee" in cash. So for example, if you wanted to borrow $100 for two weeks you might write a check for $115 and receive the $100 in cash.



A Payday loan is one of the most expensive legal lines of credit that a person can procure. (an annual interest rate of 400 - 700%), On top of that, unlike a regular loan where if you default you can be hassled for

 


late payments, a Pay Day loan company can by contrast simply deposit the check. When it bounces you will have committed a prosecutable crime that the Payday Company can use as leverage to get you to pay at any cost. In effect, they can threaten you, almost immediately, with criminal proceedings in a way that regular creditors cannot.



Critics say the loans are predatory and can confine low-income people to endless poverty. But supporters say the industry's popularity is proof payday stores provide a valuable service - providing financial help to customers snubbed by banks.



Planed Legislation would limit borrowers to a maximum $600 loan in a 31-day period and let lenders charge service fees of 11 percent to 15 percent. The bill also would require payday lenders to get a license from the state and limit customers to one transaction at a time.



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About the author:

MBA - International Trade & Finance - Heriot-Watt University. Bsc. Computers and Information Systems - Long Island University - C.W Post Campus. Hobby: Photography. Married with two Children.

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