With the current rise in consumer spending seeming to be in an ever-escalating spiral, the need for all types of credit is increasing exponentially. While for most of this is in the form of credit cards, auto loans and personal finance, there are also some less formal types of loans, that are popular among people trying to borrow small amounts on a shorter timescale. One of the most popular of these short-term loans are payday loans.
These are usually for small sums of money and are generally no more that about $500. As is implied by the name payday loans are generally taken out for a short space of time to cover immediate costs, or needs, such as to tide the borrower over until their next payday.
It is not usually necessary to get a credit check for payday loans as they are only for small amounts. The transaction is also unusual in that the repayment is generally made at the time of borrowing the money. This is by the borrower giving the lender a check that is dated to the time of their next paycheck, when the money will be available.
This gives the lender the security of already having the check to replace the funds borrowed for the payday loans. It also helps to keep costs down, as the lender does not have to seek repayment over a series of transactions.
This type of borrowing is usually taken out by people who are living on low incomes and is not generally available for larger amounts. Very often these loans are “sold “ at a shop as opposed to a bank, although some larger financial players are also starting to take an interest in providing these types of services.
If a borrower takes a loan then they would give the lender a check to cover the amount of the loan plus the fee for the loan, that is post dated to when the funds will be in the borrowers account. This would normally be at the end of the week or on their payday.
At the end of the week the lender then puts the check into the bank and gets their money back, plus the extra fee. If the borrower wants to extend the time of the loan then he can ask the lender to roll it over for another week. While this would give them more time to accrue the funds for repayment, it also doubles the amount of the fee.
This can lead to hardship and not all States allow this and in many, rollovers are not permitted. This can make things difficult, if the borrower has problems in getting the funds together, or if they need the money for something else, but it does help to avoid the difficulties that often can be brought about by escalating fees.
Payday loans are an expensive way of borrowing but can be very useful for people that are on low incomes that need money quickly, but do not qualify for the more traditional types of loans. The best way of avoiding high costs with these loans is to make sure that they are paid back after the first week and not extended.