BROWSE

Payday Loans

Definition

A payday loan is a small, short-term unsecured loan, "regardless of whether repayment of loans is linked to a borrower's payday." The loans are also sometimes referred to as "cash advances," though that term can also refer to cash provided against a prearranged line of credit such as a credit card. Payday advance loans rely on the consumer having previous payroll and employment records. Legislation regarding payday loans varies widely between different countries, and in federal systems, between different states or provinces.

What is payday loan?

A payday loan is a short term borrowing wherein an individual borrows a small amount at a very high interest rate. The borrower writes a post-dated personal check for the amount they borrow in addition with the fee they exchange for cash. The lender holds on to the check and cashes it on the agreed date. These loans are also known as cash advance loans or check advance loans.

The concept of payday loans originated as short term loans that matured once you received your wages. However, today's definition of payday loans is simply any short term, unsecured loan. These loans are best used to cover temporary cash setbacks.

Breaking down Payday loan

Though the federal truth in lending act requires payday lenders to disclose their financial charges, these establishments have earned a bad reputation for their lending practices. Many of the borrowers using payday loans have a low income or a bad credit. They may probably have no access to credit cards and are forced to use the payday loan services. Most loans are for 30 days or less and can be rolled over for additional finance charges.

Every unpaid loan involves a check that is not covered by funds on deposit in the borrower's bank account. Returned checks on the other hand cause negative credit ratings on credit reports and specialized database. A consumer can probably lose his bank account or have difficulty in opening a new account if he develops a history of bouncing checks used to get payday loans. The key difference from other types of loans and payday loans are that payback loans tend to last for a short period, usually for about one or two weeks. They need to be repaid upon you getting the next salary or income. Due to the short length there would be a higher fee and interest for a small credit limit.

Internet payday lending is the new trend in the market. They add security and fraud risks to payday loans. Consumers can apply online or through faxed application forms. Loans are directly deposited into the borrower's bank account and electronically withdrawn on the next pay date. Many internet payday loans are structured to automatically renew every payday, with a finance charge electronically withdrawn from the borrower's bank account.


Further Reading


Payday loans and consumer financial health
www.sciencedirect.com [PDF]
… lending. Credit scores. Consumer financial protection. Consumer finance. Predatory lending. Behavioral economics … an annualized percentage rate of 360–780% for a two-week loan. Payday loans are usually provided by specialized finance companies that may also provide …

Payday loans and credit cards: New liquidity and credit scoring puzzles?Payday loans and credit cards: New liquidity and credit scoring puzzles?
pubs.aeaweb.org [PDF]
… lending. Credit scores. Consumer financial protection. Consumer finance. Predatory lending. Behavioral economics … an annualized percentage rate of 360–780% for a two-week loan. Payday loans are usually provided by specialized finance companies that may also provide …

Financial literacy and use of payday loans in the United StatesFinancial literacy and use of payday loans in the United States
www.tandfonline.com [PDF]
… lending. Credit scores. Consumer financial protection. Consumer finance. Predatory lending. Behavioral economics … an annualized percentage rate of 360–780% for a two-week loan. Payday loans are usually provided by specialized finance companies that may also provide …

Do payday loans cause bankruptcy?Do payday loans cause bankruptcy?
www.journals.uchicago.edu [PDF]
… lending. Credit scores. Consumer financial protection. Consumer finance. Predatory lending. Behavioral economics … an annualized percentage rate of 360–780% for a two-week loan. Payday loans are usually provided by specialized finance companies that may also provide …

An experimental analysis of the demand for payday loansAn experimental analysis of the demand for payday loans
www.degruyter.com [PDF]
… lending. Credit scores. Consumer financial protection. Consumer finance. Predatory lending. Behavioral economics … an annualized percentage rate of 360–780% for a two-week loan. Payday loans are usually provided by specialized finance companies that may also provide …

Payday loan use and consumer well-being: What consumers and social workers need to know about payday loansPayday loan use and consumer well-being: What consumers and social workers need to know about payday loans
www.tandfonline.com [PDF]
… lending. Credit scores. Consumer financial protection. Consumer finance. Predatory lending. Behavioral economics … an annualized percentage rate of 360–780% for a two-week loan. Payday loans are usually provided by specialized finance companies that may also provide …

'In a perfect world it would be great if they didn't exist': How A ustralians experience payday loans'In a perfect world it would be great if they didn't exist': How A ustralians experience payday loans
onlinelibrary.wiley.com [PDF]
… lending. Credit scores. Consumer financial protection. Consumer finance. Predatory lending. Behavioral economics … an annualized percentage rate of 360–780% for a two-week loan. Payday loans are usually provided by specialized finance companies that may also provide …

Payday lenders and economically distressed communities: A spatial analysis of financial predationPayday lenders and economically distressed communities: A spatial analysis of financial predation
www.tandfonline.com [PDF]
… lending. Credit scores. Consumer financial protection. Consumer finance. Predatory lending. Behavioral economics … an annualized percentage rate of 360–780% for a two-week loan. Payday loans are usually provided by specialized finance companies that may also provide …

Americans' financial capabilityAmericans' financial capability
www.nber.org [PDF]
… lending. Credit scores. Consumer financial protection. Consumer finance. Predatory lending. Behavioral economics … an annualized percentage rate of 360–780% for a two-week loan. Payday loans are usually provided by specialized finance companies that may also provide …



Q&A About Payday Loans


How are payday loans different from other types of loans?

Payday loans tend to last for a short period, usually for about one or two weeks. They need to be repaid upon you getting your next salary or income. Due to their short length there would be higher fees and interest rates on them than other types of loans.

What is a payday loan?

A payday loan is a short term borrowing wherein an individual borrows a small amount at a very high interest rate.

Who typically uses payday loans?

Individuals who have low incomes or bad credit may use these services because they have no access to credit cards and are forced to use them. Many borrowers using these services have poor credit histories and no bank accounts as well. These individuals also tend not to have enough money saved up in order to cover unexpected expenses that come up during their pay periods such as car repairs, medical bills, etc... This makes it difficult for them to get traditional forms of financing through banks and other financial institutions so they turn towards alternative methods such as payday lending services in order to obtain quick cash when needed most.

What does the borrower do with the check he or she receives from the lender?

The borrower writes a post-dated personal check for the amount they borrow in addition with the fee they exchange for cash.

Why do people use payday lending services?

People use these services because they need quick cash but don't want to risk having their bank accounts overdrawn which can cause negative effects on their credit scores if done too often . They also don't want long term debt obligations that can affect their finances later down the road . These individuals are usually living paycheck-to-paycheck and cannot afford any type of delay in receiving funds due to slow processing times associated with traditional lenders . Another reason why people choose