What are payday loans?
Many check cashers, finance companies and other storefront businesses lend relatively small amounts of money to working people for a short period of time. These loans can go by different names – cash advance, check advance, post-dated check or deferred deposit check loans. But all are Payday Loans. If you have a job, it’s easy to get one of these loans. No credit check is needed, and you don’t have to put up your car title or other collateral. All you generally need is some proof you have a steady job, a driver’s license and a checking account. Usually, you’re asked to write a post-dated personal check payable to the lender for the amount you want to borrow, plus a fee. You either repay the loan before your next payday or the lender cashes your check.
• Short-term, high-cost loans designed to last until payday Also called cash advance or deferred deposit loans Often made at a check cashing outlet • Effective interest rates often several hundred percent APR or higher Why are they harmful? High-cost debt can hasten, rather than relieve, family financial ruin. Payday loans shift family income from basic necessities to loan fees. With their high fees and non-declining balance, payday loans can turn financial strain into financial chaos. Payday loans do not provide one-time help. The average payday borrower takes out 11 loans a year, according to an industry study. Payday lending encourages consumers to write hot postdated checks. A payday loan is a loan, not a service. State and federal courts consistently find that payday loan transactions are credit transactions.
To qualify for a payday loan, borrowers need only a bank account and a steady income. They write a post-dated personal check and exchange it for cash from the lender, and are typically given just two weeks to repay their loan. In a typical scenario, the borrower writes a $300 check, and takes home $255 in cash, leaving a $45 fee with the payday loan company. Fees are typically at least $15 per $100 borrowed, amounting to interest rates that routinely exceed 400% APR. When the loan is due, most borrowers cannot pay it off. They face the threat of multiple bounced-check fees, and/or legal action by the lender. To avoid default, they must pay another $45 and keep the loan outstanding, or close it out and immediately renew it in a backto-back transaction. In either case, the borrower pays $45 every two weeks to float a $255 advance, never paying down the original amount of the principal. Renewals are the rule, not the exception. Fees from borrowers with five or more times per year account
Online payday loans are short-term cash advances designed to meet your emergency financial needs. Payday loans are also perfect for those times when you need a little extra cash for unexpected bills or special occasions. It is designed to bridge the gap between borrower’s cash inflow and the paydays.
