A payday loan is a short-term loan which must be paid back on the next payday. Payday loans, also known as same day loans or short term loans, help the borrower pay his or her expenses during a temporary shortfall.
Online payday loans are simpler and often more convenient than in-store loans. In an online short term loan, the borrower provides information about his or her employer, bank account, and social security number in an online application. The amount of the loan is then direct deposited into the borrower's bank account. The loan amount plus finance charge is then withdrawn from the borrower's account on the date of his or her next paycheck. Alternatively, the borrower can sometimes choose to "roll over" his loan, pushing payment back until the next payday.
Because many people are only paid every two weeks or even every month, it is common to run out of money in between paychecks. Workers can take an advance on their paycheck by taking out a short term loan and paying it back plus a small fee later. Unexpected expenses, like illness or car trouble, can crop up between paychecks. Therefore, short term loans provide a valuable service by allowing people to take care of these expenses as they occur rather than doing without.
In addition, short term loans often have relatively loose standards for credit scores. In this economy it has become more difficult to obtain a credit card, and banks are becoming ever stingier with their loans. Placing large expenses on credit cards can be a financial burden, too, because credit card companies often have very high interest rates.
To illustrate the usefulness of a short term loan, imagine this situation: a person's car breaks down on Sunday, and he doesn't get his paycheck until the next Friday. He needs his car to get to work, but he won't have the money to fix his car until Friday. However, he can't get to work and earn his paycheck without his car! If this person were to take out a payday loan, he could get his car fixed and make it to work on time. Without that loan, he might end up losing his job. The small fee would be a small price to pay to keep his job.
Online same day loans do have some advantages over loans from typical brick-and-mortar retail stores. Applying online is quick and easy, and saves the hassle of locating and driving to a physical store. As long as the borrower earns his or her paycheck, he doesn't have to worry at all about paying back his loan- it will simply be withdrawn when his next paycheck arrives. It is impossible to forget to pay back the loan, and the borrower avoids having endless debt hanging over his head. The borrower can also shop around and find the best deal. Laws regarding short term loans vary from state to state and country to country, so lending terms can vary based on location.
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