Payday loans are small sums, short-term, high interest loans.
They are targeted towards those individuals who need a small
amount of cash for a short period of time. It is the opportunity
for individuals to get access to quick cash without the need for
extensive credit checks. Those individuals who cannot attain
credit cards, have no friends or family to loan them money, and
cannot procure an advance from their employer, often have
nowhere to turn for a bit of extra cash to fill a very short
term need.
Pay Day loans has a variety of titles including; cash advance
loans, check advance loans, quick cash loans, post-dated check
loans, and deferred deposit check loans.
The borrower writes a personal check payable to the lender for
the amount they desire to borrow plus the "loan fee". The
lending company then gives the borrower the amount of the check
minus the "loan fee" in cash. So for example, if you wanted to
borrow $100 for two weeks you might write a check for $115 and
receive the $100 in cash.
A Payday loan is one of the most expensive legal lines of
credit that a person can procure. (an annual interest rate of
400 - 700%), On top of that, unlike a regular loan where if you
default you can be hassled for late payments, a Pay Day loan
company can by contrast simply deposit the check. When it
bounces you will have committed a prosecutable crime that the
Payday Company can use as leverage to get you to pay at any
cost. In effect, they can threaten you, almost immediately, with
criminal proceedings in a way that regular creditors cannot.
Critics say the loans are predatory and can confine low-income
people to endless poverty. But supporters say the industry's
popularity is proof payday stores provide a valuable service -
providing financial help to customers snubbed by banks.
Planed Legislation would limit borrowers to a maximum $600 loan
in a 31-day period and let lenders charge service fees of 11
percent to 15 percent. The bill also would require payday
lenders to get a license from the state and limit customers to
one transaction at a time.
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About the author:
MBA - International Trade & Finance - Heriot-Watt University.
Bsc. Computers and Information Systems - Long Island University
- C.W Post Campus. Hobby: Photography. Married with two Children.
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