Today we live in a credit-based society. The term living paycheck to paycheck has all new meaning in this day and age. Because the cost of living has increased so dramatically in the last 10 years, it is next to impossible to live on paycheck alone. A lot of people do not have the resources to build a solid credit foundation from which to draw on when the paycheck runs dry. Is there a solution for these credit poor individuals? There is, and it is called the payday loan. This article is going to highlight the basics behind this new credit resource called the payday loan, and it will help you discover if the payday loan is really a cash flow solution for you.
What is a payday loan?
A payday loan is also knowns as a paycheck advance is a short-term loan between the lender and the borrower. Lenders are commonly referred to as payday loan operators. Typically they can be as low as $100, but can go as high as $1,500. They can often be referred to as cash advances, though that term is also referred to as cash taken against a pre-arranged line of credit like a credit card.
How does a payday loan work?
The borrower will go to the payday loan operator and provide an application for the process. There are generally requirements for this, but we will cover that later in the article. The borrower will give the payday loan operator a post-dated check that will total the amount of the loan plus the operator’s fee or interest. Fees generally range around 15%. The maturity of the payday loan will occur around the time of the borrower’s next payday. The lender than cashes the check or withdraws funds electronically from the borrower’s account.
What are the requirments for a payday loan?
Lenders typically want to see that you have an active checking account in good standing. You also need to have an income source, for which you have an actual payday. Generally they will require verification of this such as pay stubs or bank statements. This is to prove you will be able to cover the post-dated check that you provide for them. You also will need to be of age of majority in the area you are looking for the payday loan.
Where can I get a payday loan?
Payday loan operaters usually operate out of small stores or franchises. You can also find payday loan providers online.
Step-by-Step Example of the payday loan.
A borrower seeking a payday loan will go to the payday loan operator with the required materials and submit the application for a $100 payday loan. The lender will verify the information of the borrower while the borrower is still there. The lender will then give the borrower $100 cash. The borrower will then write a post-dated check for $115 to borrow the $100 for up to 14 days. When the fourteen day period is up, the borrow can redeem the check by paying the $115 in cash, or wait for it to be cashed by the lender. Some lenders will rollover the check for a fee to extend the loan if the borrower requires. Check with different operators to see if this option is available to you. Many states do not allow rollovers, and they should be avoided. If you crunch the numbers, it will eventually cost you $60 to roll over a $100 payday loan three times.
Now that you know about payday loans, you can decide if they are right for you. Some people view payday loans as predatory or loan sharking, but advocates of this option say that payday loans provide a service you can not get from banks or credit companies. Today, the payday loan is perfectly legal and many states are implementing laws for how payday loan centers conduct business. With this in effect, you know you and your money will be protected.