Most people would explain payday loans as small amounts of money that are normally lent at a very high interest rate. The lending is based on an agreement that the individual will repay the money when he or she receives their next paycheck. These loans are sometimes referred to as cash advances. These payday loans solemnly depend on the consumers having a good record of payrolls and employment. Payday loans laws vary from one nation to another and also between different federal states.
The process of acquiring a payday loan
The process of acquiring a payday loan is mainly based on the lender providing a short term loan that will be repaid by the borrowing individual in their next payday. The lender will of course ask for verification that the borrower is indeed employed. He can then confirm this using bank statements and pay stubs. However, it has been noted that some lending companies do not verify the employment status of their borrowers. The criteria for lending varies from one lending company to another. In some companies the borrower is expected to fill in a postdated cheque that is inclusive of the loan and the interests. During the agreed date of maturity the borrower is expected to repay the money in person and if he or she fails the lender may decide to visit the bank and redeem the cheque. If the lending company finds out that the borrower’s bank account is short of funds, the borrower may face some bounced cheque fees from their bank in addition to the loan and this can lead to increased interest rates or some other fees are incurred.
Advantages of payday loans to the borrower
1. It is very easy to apply a payday loan and qualify This is the easiest loan to apply and qualify because there are only two requirements: You must have a sufficient salary and you must have not defaulted any other payday loan.
2. Your information is very secure This is because, when you apply for a payday loan your personal banking information is not shared to any other institutions.
3. They are fast. Payday loans are very fast . It takes just some few minutes and you get the cash. Some of these lending companies will assure you that you will get the money after a maximum of one hour after you quality getting a payday loan.
4. They minimize the chances of debts. Payday loans are awarded depending on your income. Your loans at any given time are limited to your income and this reduces the chances of any debts.
5. They are short-term. Unlike bank and Sacco loans, payday loans are short term and you can easily pay them when you get your next cheque.
6. Payday loans do not restrict you. This means that you can use these loans for any purpose that you want. Nobody will limit you.
7. They are convenient This is means that you can always apply for a payday loan at any time. Unlike the banks, these lending companies are always open even outside the regular hours of banking. With technology you can also be able to apply loans online at any given time of the day.
Disadvantages of payday loans
1. They inhibit high rates of interest(9-30%) and heavy penalties incase of a delayed payment.
2. You can’t get a payday loan if you are not employed or if you do not have a convenient source of income.
In conclusion, we can say that payday loans can serve as a good source of cash incase of any emergencies. If you opt to apply for one,make sure that you pay the whole amount when you get your next paycheck.