Payday loan – A quick resource to felicitate urgent cash need

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Define the payday loan

Payday loan is a type of short term loan which can be granted against your monthly pay check.  This short term loan is also known as cash advances. The loan works alike to a credit card system, where you have the facility to get the benefit from prearranged amount of credit. However, the loan sanction is entirely subjected to customer’s payrolls of previous months along with the employment records. 

How the system of payday loan works

 The legislation regarding the loan changes from country to country.  Take in the example of United States where each state operates upon their distinctive rules regarding the payday loan. In fact, many US states has limited the range of annual percentage rate (APR) that payday lenders can charge from their customers. However, there are few US states which are not confined to this rule. They have imposed very few restrictions on payday lenders. Typically, payday loans are extremely short in nature owing to which the difference between APR and effective APR (EAR) is substantial. In addition, there is no compound interest charged on payday loans.

Method for loan sanction

As aforementioned, solicited customers monthly emoluments is taken in to the count while granting the loan.  However, there are numerous payday franchises which work upon their distinguished set of rules. They just not consider monthly pay cheque while granting the loan. 

The borrower is just expected to walk down the store to avail a small amount of loan. In lieu of this loan, the customer is asked to submit a post dated cheque as the security.  However, lenders also ask for few more documents along with the personal information to complete the screening process. After the due screening the loan value is granted. However, in some cases the loan granting process can be made fast track, and loan value can be credited within the 24 hours of documents approval.

Online payday loan

In recent times the entire process of payday loan has put online. Therefore, there is no need to visit the store physically.  All you required to do is fill an online form. The rest screening process remains the same. The repayment of loan is done through an electronically drawn application form.  The repayment of loan is done on monthly basis.  

Drawbacks of payday loan

Payday loans are subjected to fierce criticism from time and again owing to higher rate of interest as compare to other bank loans. As per the rough estimate payday borrowers are from lower strata of society. Hence, payday lenders usually prey the young people from low income group.  Due to such loan schemas, it is quite tough for the poor people to do the asset accumulation. Moreover, the intrusion of payday lenders into the social media like face book and twitter is direct violation of advertising regulations.  Payday lenders are not allowed for such type of advertising.  Moreover, many payday lenders resort to mean practices for the loan repayment, if the cheque is bounced.



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