The basic loan process involves a lender who lends some amount of money to the borrower with the assurance that the borrower will return the given amount with the current rate of interest within the decided time. Before giving the loan, verification of employment or income of the borrower is done. In a secured loan, the borrower pledges their asset as collateral.
If a person wants to fulfill expenses but he/she does not have the required amount of money to fulfill the expense, the easiest way out is to apply for a payday loan. The payday loan is a short-term, unsecured expensive loan with high-interest rates designed to help the borrower fulfill his expenses until the borrower receives his next paycheck. These loans are unsecured because they do not require any collateral. A payday loan refers to when the borrower writes a postdated check for the payday salary to the lender therefore, this loan is also referred to as “cash advance”.
Purpose of payday loan
As the name implies, a payday loan is given to the borrower for the short term. If the borrower has to buy medicine or some other emergency need and the checking account runs out of cash plus he/she does not have any savings account, this payday loan can help fulfill his need for the time being. A payday loan should be used for their intended purposes, they should not be used for fulfilling the dreams to go on vacation or to buy a car or some jewelry. These loans are suitable only for emergency purposes that cannot be delayed.
A payday loan is not for long-term borrowing or substantial expenses because the lender expects you to pay off the loan on the arrival of the very next paycheck of the borrower. You could consider payday loans depending upon your choices and preferences.
Payday Loan Procedure
For a payday loan, the borrower has to apply online or has to visit the lender physically, depending on the law of the borrower’s state. The borrower has to submit the required documents including pay stub to show his income and the payment schedule. Once the request for the loan gets approved by the lender, the borrower has to provide a post-dated cheque for the amount he will owe. The borrower can also provide his bank details so that the amount can be withdrawn as soon as the account of the borrower gets debited. If the borrower fails to pay back the loan within the decided time limit, he has to pay late fees or take new payday loans to pay the old ones.
Rollover of payday loan
In cases where the borrower is unable to return the money to the lender within the decided time limit, some lenders give the option to renew or rollover the payday loan. The borrower has to pay an additional fee for this renewal or rollover. Many states do not allow this renewal or rollover of payday loans.
Requirements to qualify for a payday loan
The lender does not check the borrower’s credit history before lending the payday loan. The lender requires the borrower’s identity card to have proof that the borrower is at least 18 years old, the salary stub or the source of income of the borrower and that the borrower has an active account and credit card or not. The requirements may vary depending on the lender.
Advantages of Payday loan
A payday loan is easy to access. Many lenders promise cash delivery within 24 hours of the request. The lenders are available round the clock. The payday loan does not require checking of the credit before request approval which makes it suitable for many borrowers. The payday loan does not require any collateral also which is a plus point for the borrowers. Payday lenders require minimum requirements and fast access to the money-making it the most important advantage of the payday loan.
Disadvantages of payday loan
The most important disadvantage of a payday loan is the high rate of interest. The rate of interest for a payday loan is equivalent to a 400 per cent annual percentage rate or beyond. This rate of interest is higher than the rate of any other loan or even higher than the rate of credit card, therefore, making it unsuitable for many borrowers to get this payday loan just because of its higher rate of interest.
Payday loans are designed to trap the borrower in a cycle of debt. The payday loan lenders do not report the borrower’s payment to the bureau therefore the payday loan hurts the borrower’s credit.
Alternatives to payday loan
There are many more alternatives to payday loans depending upon the need of the borrower and the reasons behind the loan.
It is better to use a credit card instead of a payday loan. Although the credit card also has a high rate of interest it is still far less than the rate of interest given by most payday lenders.
If the borrower has any savings to cover the expense, it is far better to use those savings instead of borrowing from a payday loan provider.
Payday loan lenders
Certain direct payday loan laws in California should be known before applying for a loan. If you want to learn more head to https://www.ustatesloans.org/law/ca.
Generally, the borrower has to directly give his application to the lender and get his loan easily. The borrower can also apply for the payday loan through a broker in between which will send the loan request to the direct lender and also charge his fees so it is better to opt for a direct lender instead of opting for a lender through a broker. There are many payday loan lenders available online. The borrower can visit them also.
Submitting complaint regarding payday loan lenders
If the borrower faces any issue ranging from rejected application and loan disbursement to unjust fees, the complaint should be launched against the lender. Well-reputed lenders have a resolution mechanism that helps to resolve the issues of the borrowers.
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