A payday loan can also be called a payday advance, or a salary loan, a payroll loan, a small-dollar loan, a short term, or even cash advance loan. It is generally a small, short-term unsecured loan, regardless of whether repayment of loans is linked to a borrower's payday or not. These types of loans are sometimes also referred to as cash advances, and that term could also refer to cash made available against a prearranged credit line, such as a credit card. Payday loan advances rely heavily on the consumer has had a previous payroll and stable employment records.
Payday loan legislation varies widely from country to country, and also between federal systems, states, counties or provinces. To prevent usury, which is an unreasonable and excessive rate of interest, some states and jurisdictions limit the annual percentage rate of any lender, including the ones who offer payday loans. Some of the jurisdictions even outlaw payday lending ultimately, however, some have few restrictions on payday loan conditions and lenders. In the USA and a few other countries, the rates of the loans used to be very restrictive in most states and are governed by the Uniform Small Loan Laws, with 35% to 40% interest generally the norm. The annual percentage of such loans is very likely to be quite high, yet the rates can vary dramatically, and that depends on the exact conditions of the payday loan. For instance, a $20 charge levied on a $100 payday loan valid for 14 days could be anything from 391% to an astonishing 3,733% or even more! These kinds of loans tend to carry substantial risk for the lender, and it has been proven that these loans do not carry any additional long term risks for the lender compared to the many other forms of credit available. The United States Securities and Exchange Commission confirmed these studies, and filings by at least one lender, notes a charge-off rate of 3.2%. The necessary payday loan process will involve a lender who provides you with a short-term, unsecured loan which will necessarily need to be repaid at the next payday.
Generally speaking, there will need to be some verification of employment history, and your income is involved, where you will need to provide payslips and bank statements. According to a source, some of the payday lenders don't verify your income or even run a credit check. Mostly, individual loan companies and their franchises will have their own underwriting criteria and specific conditions. Borrowers will traditionally visit one of the payday lending stores and secure a minor cash loan, with its payment due in full as soon as the borrower's next paycheck arrives.
The borrower can write a post-dated cheque made payable to the lender for the full amount of the loan plus interest and fees. Upon maturity, the borrower will be expected to return the loan to the store to repay it in person. If the borrower cannot repay back the loan in person, the lender could redeem the cheque. If the account holder is still short of funds to cover the cheque, the borrower may now be facing a bounced cheque fee from the bank in addition to the other costs of the payday loan, and it may even incur additional charges or increased interest rates if you fail to pay on time.
The most recent innovation is online payday loans, where consumers can simply complete their loan application online, and in some instances also by fax, especially since your documentation will be required. The funds will then be transferred directly to the borrower's bank account, and the loan repayment and finance charges are electronically withdrawn when the borrower's next payday paycheck arrives.
