Cash crunch may hit you one month, when it’s difficult to make the ends meet. A small loan, at that time, can prove to be an answer to your prayers. A payday loan is a small, short term loan, provided to a salaried person. It is payable at the next pay-day of the borrower and hence the name.
These loans can be procured at the retails level as well as online. A borrower can procure a small cash loan from a retail outfit giving out this kind of loans. Standard checks like recent salary slips and bank accounts are mandatory to determine if the borrower is capable of paying back the loan. In addition to this, the borrower also has to deposit a post dated check to the lender, giving a time period of two weeks on an average, for funds to be ready in the account. At the end of the time period, the borrower can come to the outlet again and pay back the amount. Alternatively the lender is at liberty to deposit the check and retrieve the amount out of the borrower’s bank account.
The amount charged is the total loan amount plus a fee for giving out the loan. Unavailability of funds in the borrowers account will increase the penalty to be paid.
While poor credit cash loans make ready funds available to the needy, it is also criticized as a policy. Payday loans have been accused of exploiting low income groups, who find themselves in cash-crunch situations almost every month and end up paying more in fees. The fee structure, though regulated, tends to be erratic and becomes the arm of exploitation. Advertising of such lenders do not always show the percentage of interest to be charged or even if they do show it, they do not do it in a prominent fashion. This misleads many desperate employees, who are willing to pay some extra money to tide over. This amount becomes exorbitant and by then it’s too late for them to get out of the loan. Due to unavailability of funds a lot of the postdated checks bounce and lenders threaten legal prosecution to the borrowers, which in illegal in itself.
Payday lenders also claim that interest rates should be as much as other lenders like home loans and car loans. But this is not valid, for pay day lenders do not conduct a full credit assessment of the borrower. For the small amount that they lend, a pay slip check and a mandatory look at recent bank account statements suffice.
While useful in some aspects, pay day loans can be an expensive and exploitative proposition too. If procured once in a while, comparing interest rates and making sure that repayment will definitely be possible, it is a viable option. Otherwise, it is prudent to explore other options like cash advances from employers, cash advances from credit cards or bank overdraft protection.