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Expert Answers to Biz Questions
Listen in! Pick up some expert advice to a reader's question that we selected from CyberSchmooz.
Basic Procedure to Get A Payday Loan
A payday loan is a short-term, unsecured loan in which an individual takes out a small amount of money with high interest and pays it back quickly. While terms and conditions for payday loans may vary in different countries – in the USA they can also vary in different states – the general concepts are the same and applying for payday loans around the world follows quite similar processes.
Payday Loan Process
Typically in the USA, borrowers applying for payday loans first need to provide some basic information and materials to ensure that they are not trying to take out a loan in someone else’s name or that they are trying to take out a loan that they cannot afford to pay back.
When an individual applies for a payday loan – also known as a payday advance – they must present to their chosen lender their personal identification, proof of income, and a personal check that covers the borrowed amount as well as additional fees. A due date will then be established to pay the loan back and on that day the lender is entitled to cash the check. However, not every payday lender has the same process and some might ask for specific documents like a bank statement or pay stub in order to approve a borrower for a short-term loan.
Traditional Retail Model of Payday Loan
A borrower can get small cash loan by visiting a lending store, and the deadline for paying back the loan in full is when they receive their next paycheck. When that date arrives, the borrower is required to revisit the store in order to pay back the loan, the fee, and the interest that they incurred during the time that they had the loan. If they cannot pay back the loan or refuse to do so on this day, lenders have a means of claiming back the money they lost by asking borrowers to write a postdated check of the total loan amount and fees when they first apply for their loan. If the check bounces, the borrower is then charged an additional fee, which is added to the total amount that they owe and may increase their interest.
Recent Developments in Payday Loans
In recent years, online payday loans have beome more popular, and today a borrower can apply for a payday loan online in a matter of minutes. Online lenders use online forms to collect the details of their borrowers, and when their application is approved the loan is transferred to the borrower’s account. Online loans tend to be much easier for both borrowers and lenders because rather than having to go back to the lender’s store to repay the loan, lenders use an automatic repayment system to automatically deduct the loan amount from the bank account of the borrower on the due date.
Costs of Payday Loans
Payday loans are designed to be short-term only, so over time the interest can add up. While different lenders have loans with different APR, the APR on payday loans is typically higher than it is for secured loans. However, The Community Financial Services Association of America (CFSA) – an organization that regulates lenders – and state governments continue to put in place regulations to cap fees and APR and cut down the cost of payday loans.
Pitfalls of Payday Loans
High interest is one of the most notable pitfalls of payday loans because it can build up over time and make loans very difficult to pay back. This is why lenders and governments advise that you don’t apply for payday loans that you cannot afford and if you are in debt, you should instead use loans with low interest that you can take your time paying back.
Potential Advantages of Payday Loans
If you run into small, unexpected expenses, a payday loan might be just what you need if you are a little bit short on cash. If, for example, you get a burst tire on your way to work and you need to get it fixed in a hurry, a payday loan will cover the cost and you can pay it back when you get your next paycheck.
While payday loans aren’t right for everyone, under certain circumstances they can make your life a little easier and save you from falling into unnecessary debt.
The Benefits of Payday Loans
- Quick Access to Money
Payday loans enable people to get hold of money quickly – sometimes as quickly as within a few hours. This makes them a great option for those who want money to cover emergency expenses.
- Payday Loans are Available to Everyone
While there are different eligibility requirements around the world for payday loans, these loans are the most widely available type of loan. Sometimes all you need is I.D. and a bank account in order to be approved for a payday loan. Payday loans are for anyone who might be worried about their expenses and needs money fast to cover their bills.
- Short-Term Loans of Small Amounts
The problem with a lot of secured loans is that the minimum amount that you can take out is sometimes more than you need. If you only need enough to cover your expenses until the end of the week, then taking out a loan that will have you paying it back for several months can overcomplicate the situation. With payday loans, you get to choose how much you borrow, so you won’t be forced to borrow money that you didn’t want in the first place.
- Faster and Simpler Application Process
Bank loans can be a lot of work to apply for; requiring you to fill out forms, provide photocopies of any and all relevant financial documents, and you may need to arrange getting a guarantor or providing collateral. With an online payday loan, the application process is quick and easy. All you have to do is fill out your details in an online form, and in no time at all you can find out whether you have been approved and receive your funds.
Government Regulations for Payday Loan
In the past, payday loans were considered suspicious and illegitimate, but now these loans are being properly regulated and taking out a payday loan is now a lot safe. All payday lenders most follow guidelines put in place by their regional government as well as relevant regulatory agencies like the CFSA or the FCA. Now, people can apply for payday loans with a lot more confidence.
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