Payday loan, which is also known as payday advance or cash advance, is nothing but a short term loan, which is unsecured by nature. It is a lucrative option if one doesn’t want to go for pawn brokers, credit payment plans, cash advances from the credit cards, also emergency community assistance plans, small consumer loans and credit union loans, etc. Payday loan system totally depends upon the payroll as well as employment record of the person seeking loan. Rules and regulations regarding the same vary from country to country and within United States it varies from state to state. In case of loans, so as to avoid the unreasonable and excessive interest rates, some authorities have fixed the limit of annual percentage rate for the lenders, which is also applicable to the payday advance loan lenders. In some cases there are very few or no restrictions at all on the payday lenders.
Payday advance loan (3, 6 or 12 months), according to research studies, have been said to be applied by usually the white females who fall within the age group of 25- 44 years or those who don’t have a four year college degree, or are home renters, or African Americans, or those belonging to low- middle income class category and those who are either separated or divorced. Also, payday is more than often applied by those who want cash for ordinary living expenses for a couple of months. But this is just the conclusion drawn from a group of studies done on some representative samples and exceptions can be there.
The payday advance loan process involves the sanctioning of short term loan which is repaid by the borrower on his/er next payday. This sanctioning happens after the verification of employment as well as the regular income of borrower and both these things are checked through bank statements, pay stubs, and confirmation from the employer. In some cases none of this is checked and again the procedure of sanctioning varies from lender to lender. Once the verification process, if any, is complete the borrower attains small cash, and writes a post dated check against the name of the lender such that it includes the full amount plus some loan fee. Once the maturity date comes, it is expected out of the borrower to repay the loan in person and if she/ he fails to do so then the lender has the right to redeem the check, which means that the borrower might face the problem of increased rate of interest as well as the additional issues of bounced back check fee at the bank’s end.
Nowadays, there’s a whole lot of aggressive advertising practices that are being followed by lenders through several online mediums and social networking sites like Facebook, etc. Today, people have the facility of applying for an online payday advance loan and all the steps stated above can be accomplished by simply filling in an online application form and the documentation task can be achieved by mailing or sending the proofs via fax. Loan is transferred through a direct deposit by the lender to the borrower’s account and on the next payday the loan repayment amount is withdrawn from the borrower’s account. In addition to that there are some companies that provide a short-term credit service on the mobile phone as well through the text message. They offer virtual credit advances to their customers such that the paychecks or other funds of these customers are deposited electronically into their respective accounts.
As per the US law, any payday lender can utilize the same industry standard collection practices so as to collect the debts, especially those that have been registered under the fair debts and practices act, and not go beyond that. This means that the lenders in case of a borrower’s failure can at first request for the repayment and if still fail to attain the money back, then can outsource some debt collection or sell the debt to the third party. Anything beyond this is considered illegal. Also the interest rate is decided by the lender by taking into consideration factors like overdraft fee, late payment issue, penalty fee, etc. At present there are some companies that offer payday advances even if someone has a bad credit and don’t even demand for any credit cross check.