You might have heard of a payday loan. Are you wondering what it is? Well, this article will give you much needed information on everything you need to know about Payday Loan.
Payday Loan is also called paycheck advance in some areas. As you can guess from the words, payday and loan, it is a short-term loan that is intended to cover the employees expenses until the next payday comes. These are what some may call emergency loans. The amount of cash that you will borrow will be removed from your next salary. There are times when people call these loans as cash advances. Though if we use this term then it can also be related to the credit card industry. There are various legislation regarding payday loans. It contrasts from one country to another and in the case of the United States of America, from one state to another.
There are some states and countries that strictly impose usury limits. They limit what is called the nominal annual percentage rate (APR) which is the charge of the lender to the borrower. This will be added to the debt of the borrower. We can also see the statistics side of the situation. The effective annual rate (EAR) takes compounding into account unlike the nominal annual percentage. For example, when a borrower decides to loan an amount of $200 on a 2 week payday loan with a 20 percent charge there is a significant difference between the computation of APR and EAR. When we compute it using the APR then we will have a computation of 26 x 20 percent = 520 percent. However, when we compute it using the EAR then we will have a computation of (1.226-1) x 100 percent= 11, 447 percent. As we can see, there is quite a difference between the computations of the two rates so one has to be careful when reporting whether each rate is quoted so that the computations will be reliable and unquestionable. It will also be helpful to know these computations when you are the borrower so that you will know if you are paying the right amount of money.
Some borrowers visit a payday lending store which can be found in many areas. They will secure small cash loans which are usually below a thousand dollars. They will give the full payment once they get their next paycheck. Hence, this is the reason why they call it paycheck loans. The usual time cycle of this kind of arrangement is two weeks or three weeks. There are some lending stores in the United States which charges with a minimum of 15 percent and a maximum charge of 30 percent. This usually translates to an APR of a minimum of 390 percent and maximum of 790 percent. This is the case for a term of two weeks. Usually, to ensure that the money will come back to the lender, they will require the borrower to write a postdate check addressed to the lender with all the details. This includes the full payment and the fees or charges. We also have a maturity date which is the deadline of the full payment of the loan. On this date, it is expected that the borrower will return to the store to repay the loan in person. However, if the case arises that the borrower does not return then the lender can deposit the check instead.
Here is where it gets complicated. When the check bounces due to shortage of funds then the borrower may incur additional charges because of failure to pay on the agreed date. There are times when the borrower could ask for an extension for the payment of the loan. There are some states in the United States which requires the lender to extend the payment if needed or requested by the borrower.
The lender is not afraid that the borrower cannot pay them on time. Before the payday loan is granted, the borrower needs to prove that he or she has a steady income. Other than that, the borrower is also requested at times to present bank statements as further proof that they have stable income and can pay the amount being borrowed and the fees included. There are some private companies and franchise that have their own set of rules and regulations.
The key when making paycheck loans is the right information regarding the lending store you will be borrowing from and you have to make sure that you really need the money. If you do not really need the money then you can just wait for your next paycheck.
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