About A Payday Loan

What are Payday Loans?
A payday loan or paycheck advance is a loan where the lending body is giving the borrower a loan (usually cash) in advance of their pending payday. They're also known as cash advance loans, check advance loans, post-dated check loans or deferred deposit check loans. Many people find a payday loan useful if they encounter unexpected expenses such as car or house repairs or short-term difficulty in maintaining regular payments such as utility bills. It acts as a way to keep the borrowers cash flow healthy until their next payday. It is a short-term loan, of usually relatively small value, the amount depending on the size of your regular paycheck. The key for many borrowers is that a payday loan is a loan that does not require a credit check.

There are literally thousands of loan 'stores' operating in North America. Each financial institution will set the percentage of your regular income they are prepared to lend you. For example, if you are paid monthly, and your regular paycheck is $2000, a financial institution would lend you, say 50% of this, i.e. $1000. Many lending institutions will often provide an online calculator to help a borrower determine how much they may be able to borrow. This payday loan will then usually be due in full on your next payday plus interest and fees. The lending institution will usually take the owed amount automatically, by cashing the post-dated check you will write to the institution when they loan you the money. The post-dated check will be for the original loan principal, along with accrued interest and fees. It is worth noting that if the check bounces a borrower could face criminal charges, not to mention bounced check charges from the bank. Some instituions offer the option of ‘rolling over’ or deferring loan repayment for an additional fee.

Due to the nature of the loan i.e. unsecured on any sort of property and lent without a credit check, the borrower will pay an interest rate usually well in excess of that if a credit card cash advance or other similar loan was available. Pay day interest rates can be 250% or much more when annualized, therefore, the cost of borrowing should be balanced with the late fees that would otherwise be incurred by the borrower on regular payments such as utilities or credit cards. Naturally the amount of interest and fees to pay will increase with the amount of money borrowed.

It is always worth double checking exactly how much interest will need to be paid. Some borrowers have reported problems with being charged above the rate declared in lending documents, despite this being unlawful. In the United States, most loans are governed by 'usury' laws. Those laws limit the amount of interest that can be charged on a loan. It is also worth checking in advance what extra charges may be incurred in addition to interest such as a processing or deferral fee (if the loan repayment is delayed) for every $X borrowed.

If a borrower is able to repay the loan early, i.e. before their next payday, they can visit the lending instituion and ‘redeem’ their check. This will often save a great deal of the interest that would otherwise have been charged.

In the majority of cases a physical visit to one of the lending institution branches will be required, and evidence of identity (passport, drivers licence etc), pay (most recent payslip), and proof of income deposit to a bank account will be required. Each lending institution will have its own requirements in this regard.
As an alternative to the typically small stores or franchises that offer payday loans, some large financial service providers also offer variations on the payday loan though the qualification criteria for a loan may be more difficult for a borrower to meet. Some banks offer a "direct deposit advance" for borrowers whose paychecks are directed deposited. This would be a small cash advance, redeemed by the bank on the date of the next direct paycheck deposit, along with a fee (typically 10-20%). Some income tax firms also partner with lending institution to offer "refund anticipation loans" to tax return filers.