What are payday loans?
Payday loans, sometimes called payday advances, are short-term unsecured loans, usually for small amounts. The only collateral usually required to apply for these specific loans is some type of employment record, such as pay stubs, although the term payday loans has become shorthand for any type of small, short-term loan. even if it’s not technically backed by a direct dependency on the borrower’s next paycheck. Payday advances, like any loan vehicle, are heavily regulated. These regulations vary widely from state to state in the United States and from country to country internationally.
Payday loans are a booming business
Payday lenders have been extremely successful around the world, and they attribute that success to offering a service that was previously unavailable. They point out that emergency cash loans offer an attractive alternative for people who are unable or unwilling to use less expensive conventional routes to borrow money. Some UK emergency cash advance companies have described their approach as a useful financial service for young, web-savvy borrowers used to the ease and convenience of instant online communication. These applicants often feel left out of the mainstream banking system. Today’s modern consumer, raised entirely on social media, can even apply for these microloans using their smartphones, and the money is transferred to the successful applicant’s bank accounts in a matter of minutes.
Compare payday loans to other types of loans
Many types of short-term loans can seem expensive when the fees associated with the loan are factored in as an annual APR. For that reason, payday lenders prefer to compare their loan products with bank overdraft fees and other fees that traditional lenders use to recover funds. Many payday lenders don’t even characterize their business as banks, just another form of Internet technology, used to connect willing borrowers with willing lenders.
Payday loans are available 24/7
As traditional loan outlets become harder to find and require increasing amounts of paperwork for even small loans, payday advances have stepped in to fill the gap. They are available 24/7, and in many cases the process is so completely automated that loans are made without the borrower having to speak to another person. Once applicants have established a successful repayment history of cash advance loans, some lenders simply require applicants to text the desired loan amount and desired loan term, and the money is available at instant.
So why would you pay the extra interest?
Sometimes it’s an unexpected emergency, or it could be that an opportunity has arisen that you couldn’t pass up. Are they playoff tickets? A friend got access to the front row seats at the “fight of the century”? Or maybe you have committed an unforgivable sin and have forgotten your partner’s birthday…
Whatever the reason, you’re short of cash. If you don’t have credit cards and maybe your friends and family won’t be in a position to help you. What do you do for a living?
It is becoming more common for people with immediate financial needs to approach a short-term loan company for a “payday loan.” These loans are often unsecured, meaning the borrower has no collateral to provide. This makes the loans a high-risk cash advance for the lending company. If the borrower posts the bond, there is nothing of value to collect. They offset the increased risk by charging very high interest rates.
The applicant generally must provide proof of employment and government-issued identification. The idea is that when the applicant’s next paycheck is issued, the funds will be used to pay off the loan. In some cases, loans may be made for the borrower to purchase a car or other expensive item. In these cases, there is somewhat less risk for the lender. The item can be repossessed if the applicant does not repay the loan as promised.
So what’s the bottom line
Companies from all over the world offer payday loan services, including Canada, the United States, Australia, and Great Britain. Rules and regulations regarding the amount of interest that can be charged and limits on loan amounts vary depending on the country, state, province, or county where the payday loan company is located.
The industry is growing; possibly the fastest in the UK, where there are fewer regulations on how payday loan companies can operate. UK companies have expanded into Canada and Australia. In some US states, very high interest loans (such as those offered by payday loan advance companies) are illegal.
On-the-spot check cashing is another service often offered by payday advance companies. Perhaps the customer doesn’t have a bank account or wants immediate access to cash. A flat charge or a percentage of the check amount will be charged as a fee. Short-term loan companies often open early and close late to take advantage of those who need immediate access to cash.
Many companies now offer online applications for payday loans. They usually offer a quick decision on the client’s request, sometimes within an hour. The cash can then be deposited into a bank account or cashed out by the borrower at a company office.
