Payday Loans


Payday loans work in a simple way.

They rely on the fact that you are employed and will be getting a check in the next month or so. When you go to a company offering payday loans, you write out a check based on the strength of your next pay day and you are given cash in exchange. On your next pay day, the company cashes the check and your loan is paid off. It is completely legal and secure to get this sort of loan. However, the interest rates on pay day loans and the high administrative fees on these loans create problems for many people. In most cases, the costs of pay day loans mean that you pay - several times over! - what you have borrowed. This creates a cycle of debt for some people who live pay check to pay check and therefore must take out pay day loans to pay off the previous month's pay day loans. This leads to a cycle of debt that can be increasingly difficult to break out of. In fact, some countries have begun to investigate the legality of the high interest rates and fees associated with payday loans. In this country, however, pay day loans are perfectly legal and are in fact a huge multi-million dollar business which is rapidly growing each year.

Bad credit? No credit? Not a problem. All a consumer needs to obtain a payday loan is a job, a phone, a utility bill, a checking account, and a driverís license. The borrower writes a personal check payable to the lender for the amount he wishes to borrow, plus a fee- typically 10% to 25% of the check. The check is held for one to four weeks, usually until the customerís next payday, at which time he either redeems the check by paying the face amount, or allows the check to be cashed. If the borrower canít afford to cover the check, he may roll it over for another term by writing another check, which will result in another set of fees being added to the balance.

An advantage of online payday loans is the fact that a quick online approval of your payday loan means the payday loan funds can be deposited in your checking account right away saving you another unwanted trip to the bank. Creating an online account with a payday loan source or a cash advance loan source is usually quick and painless and one you can use again for futre payday loans or future cash advance loans without having to create a new payday loan account everytime.

Under the Truth in Lending Act, the cost of payday loans - like other types of credit - must be disclosed. In addition to other information, a borrower must receive, in writing, the finance charge (a dollar amount) and the annual percentage rate or APR (the cost of credit on a yearly basis).

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Payday Loans in Questions and Answers