It is no surprise when most of the people around us complain of running short on cash middle of the month. Even we face similar situation as even before the regular salary is credited, expenses are already standing on our head for its redress. To top it up, any critical or unavoidable expenditure during this hour means multiplication of financial stress. Ultimately we all look forward towards borrowing money to fill this shortfall gap and come out of situation. Opting for a product like a payday loans finds preference amongst many over borrowing from other financial channels.
Going to a bank or a credit union to apply for a loan a cumbersome process. This can take anything from some days to weeks and comes loaded with the submission of plenty of documentation. Some of the banks are not that keen to lend money to an average middle or lower income groups due to a high probability of default. A payday loan pitches in here and helps us to overcome all the concerns above. Absence of a collateral in the deal and the loan application to loan disbursement timings lasts not more than one day. It is the fastest and one of the easiest way of securing money especially in the times of sudden crisis. The contract comes with a full round of terms and conditions ranging from interest, repayments, documentation defaults etc. and a person using this form of credit must do an in depth analysis before going ahead with the deal.
As per the product features, a complete repayment of this loan must be done by the end of the month as soon as the borrower gets the next salary credit. This balloon payment comprises of the principal, interest and all other charges accrues over the loan as per the nature of the deal. The standard practice is to provide the lender a postdated check with this amount which the lender shall present on the salary date. Some lenders also take a debit authorization form from the borrower so as to allow them to directly debit the money from his account on the stipulated date.
Such loans are criticized for having a high rate of interest which has resulted in banning of this product across various states in the US. A typical payday loan of $100 accrues $15 of interest for about 2 weeks of time. The amount of $15 interest may not look very high in absolute terms but when annualized and compared in percentage terms, this works out to over 500% APR.
Payday loans in Idaho is not explicitly disallowed but a high annual percentage rate charging loan is considered to be an illegal transaction. As per the statutory norms, the entities in the business of lending small ticket lending in Massachusetts require a small loan license from the Division of Banks. The division has made it mandatory for the lenders offering loans lesser than $6000 and charging an interest greater than 12% must obtain a small loan company license as per the Massachusetts General Laws chapter 140, section 96-114A and its implementing Regulation 209 CMR 20.00. As of now, the law has capped the interest rate for such loans to 23% with an annual administrative fee of $20. All the payday lenders are required to comply as per these rules and must obtain a license before commencing such activity.
It is very important for a borrower to understand that the online payday loans are meant only for the short term borrowing for any financial emergency. This product is not a long term financial solution. A borrower should try and explore various other low cost options and save themselves on heavy interest payments. Some of the options can be:
Each option requires a good financial consideration before acting on it. A borrower must do a good analysis and make a repayment plan before finalizing any deal.