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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
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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DISCLAIMER: We hope whatever you find on this site is helpful, but be cautioned that it may not apply to your own situation, or be totally current at any given time. Idea Cafe Inc. and all of its current and past experts, sponsors, advertisers, agents, contractors and advisors disclaim all warranties with regard to anything found anywhere on this family of websites, quoted from, or sent from Idea Cafe. and its related sites, publications and companies. We also take no responsibility for comments published by others on these pages.
TRADEMARKS: The following are Registered Trademarks or Servicemarks of DevStart, Inc.: Idea Cafe®, Online Coffee Break®, The Small Business Gathering Place®, Take out Info®, Biz Bar & Grill®, Complaint-O-Meter®, A Fun Approach to Serious Business, CyberSchmooz, and BizCafe.