A payday loan is a type of small, short-term (meaning it is settled within a period not exceeding one year) loan issued on the basis of one’s current income. This loan is usually unsecured i.e. one does not place any assets as collateral. Basically, this type of loan is issued to persons who are employed but have not yet received their compensation. For this reason, it is only those who are employed that are eligible for the payday loans. These loans can be used to settle financial crisis such as a due mortgage payment, a medical bill and many other emergencies. This said, a borrower is not restricted from using the loan in other areas. There are people who even secure payday loans to fill the gap in their budgets. This type of loan is at times referred to as a cash advance.
Usually, a borrower visits a payday loan lender and fills a form that shows the amount that they are borrowing, the date they are expected to pay back, the interest rate charged on the loan and most importantly their income. Thereafter the two parties sign and the borrower is issued with a copy of the agreement while the creditor is left with the original copy. The creditor then writes a check for the borrower to en-cash. It should be noted that the borrower has to produce documents verifying their employment and age. The most common documents are bank statements, pay slips and national identity cards.
Due to the structure of payday loans, the interest rates are normally higher than that of traditional bank loans. However, in each and every country that these kinds of loans are offered, the government has come up with a regulatory board that governs the level of interest rates that a payday loan lender has to charge their clients. This way, they do not have a chance to exploit their customers. Whatsoever, these rates vary from one country to another given that they all have different levels of economic outcome as well as the per capita income.
To date, payday loans issuers have come up with a more simplified method of applying for the loan thanks to the internet. This is through an online pay day loan. They differ from the common payday loans by the fact that they are applied for through the internet. A borrower fills put the application form online and sends it to the lender. Later on, the creditor sends the requested amount of cash to the borrower’s bank account. To retrieve his cash, the creditor electronically makes deductions of the agreed cash from the borrower’s salary account. An Online pay day loan is time saving and cost effective. The documents that are required to support claims such as employment are faxed to the lender but one can as well scan and send them through emails. In any case, the important thing is to adhere to the rules that the lender has set.
To lenders, online pay day loan can be a means of one’s down fall in business. This is because the loans are usually not secured and in the event that the borrower does not settle their debts, the creditor is forced to take it as a bad debt. Bad debts are sums of cash that are lent to parties but the creditor anticipates that they will not be repaid. As a means to rectify this situation he sets aside some of his cash to cater for these debts. This referred to as provision for bad debts. Of course, this is a loss to his business. In the part of the borrower, payday loans can be a cause of one to remain in the debt cycle. This is because the interest rates are very high and one is forced to renew the loan in a aim to settle the previous one until they are in a position to save for the principal.