Payday loan is a short term unsecured loan of a small ticket size. This is a credit facility granted as a cash advance to the borrower with a running job to meet his immediate financial need. The basic contract makes it clear for the complete loan payment to happen by the next pay day of the borrower. This facility comes with little or no credit checks so it serves to a wider number of prospects who have a poor credit history with the banks. Each lender has its own criteria of underwriting such loans and the governing legislation is different for different countries or the state within the United States.
The popularity of the Payday loans comes from the high rate of unemployment, recession and heavy mortgage payments. Payday loans come to the rescue of an average American by offering the any unexpected money crunch, bills or any such sum between the two pay checks. The small loan size and skipping of a cumbersome documentation process makes it favorable over standard bank loans. A person can borrow the exact sum he needs and is able to pay it back. For example if anyone needs an extra cash of $200 auto repairs, he doesn’t need a loan of $2000 from the bank, but can borrow just $200 as a Payday loan and pay it on time. The absence of any long term contracts and there are no lingering obligations. The payback is fast and easy. There are not many credit checks or a credit bureau investigation done at the time of the loan appraisal. This is one of the major USP of the Payday loan which is able to fund the customers having an adverse credit history with any of the borrowing products.
An applicant is required to be a permanent US resident, above the legal age of 18 years or above, and must be into an active job or profession which yields in a steady source of income on a definite time frame. The customer is required to satisfy the lender with the necessary proofs of such income. Also a presence of an active bank account builds up the credibility of the loan seeker.
The loan process includes the application for a Payday loans over the internet. With a small amount of information input, the customer can get an instant approval decision which also tell the customer how much he is eligible to borrow. The customer can choose any amount basis this approval for borrowing. In case a customer is visiting the store, he can sign the documents and take the cash. And if this process is over the internet, the money is transferred to the customer’s bank account after submission of an electronic signature with an authority to the Payday lender to withdraw the applicable amount directly from the bank account of the borrower or issue them a postdated check with the payable amount.
Repayment of the loan along with the necessary charges is required to be completed by the next pay date of the customer. The customer is also foretold the penalties and the applicable fees in case there is any default on the contract of repayment. In a case of repetitive nonpayment of the payments, the lender can assign and enforce any debt recovery agency in order to recover such a bad debt. In any unforeseen situations when the customer wants an extension or a renewal of the loan, there may be an additional penalty which the lender can levy which usually forms a part of the signed contract. A Payday loan does not support rollovers and the credit facility is to be brought under control and closure as soon as possible.
To control the exploitation of the borrowers and charging of unjustified rates of interest, some states in the United States limit the APR (Annual Percentage Rate) that a Payday lender can charge. The average payday APR ranges from 35-40%.
There are also some of the alternatives to this Payday loans. Example includes borrowing a small loan from the Credit Union or the local banker of the customer. A customer should compare the APR from the multiple lenders which will enable him to take the cheapest credit. Having a realistic budget and standing by a strict expense monitoring can also help the customer to come out of the debt trap. Also there are multiple non-profit groups who are more than willing to offer the credit guidance to the needy customers and conduct multiple counseling sessions.