A “payday” loan is a short-term loan for a small amount of money, usually about $300 or so. These types of loans are becoming increasingly popular amongst all walks of people, from fast-food works to doctors. Payday loans are especially popular amongst people with lower incomes though because they often don’t have any other loan options available to them. While payday loans are an attractive option because they are so easy to get, people should be aware that the loans come with very high interest rates which may make them a bad choice.
Applying for a Payday Loan
In the past, most payday lenders were located in storefronts. Now, most companies offering payday loans are located online. This helps them cut back costs so they can theoretically pass the savings onto customers. The process for applying for a payday loan is usually very simple. You will have to provide some basic personal information, proof of ID, and probably also proof of employment such as with pay stubs. Some payday lenders don’t require you to show proof of employment for small short-term loans.
If the payday loan is approved online, the funds will be transferred into the borrower’s bank account via direct deposit. In some cases, other payment methods are also available, such as wire transfer.
Repaying a Payday Loan
When taking out a payday loan in person, you will generally be required to write a postdated check for the amount of the loan. The lender will then cash this check on the agreed-upon date. If the borrower does not have funds in his account by then, he will still be responsible for the loan amount and may also have to pay check bouncing fees from his bank.
For paying back online payday loans, the borrower usually has to give account information. The loan amount will be directly withdrawn from the borrower’s bank account on the agreed-upon date.
The Pros and Cons of Payday Loans
Payday loans are often criticized as targeting low-income communities and draining them of their resources with high interest rates. However, payday loans may be the only option for these people as they are often ineligible for standard bank loans. When paid off on time, the high interest rates of payday loans may be well worth the fee. However, if borrowers get behind on their debt or perform several “roll overs”, the costs of payday loans can take a quick financial toll leading to poor credit and debt.