What is a Pay Day Loan?

By Sarah H. — Published February 06, 2018

What is a Pay Day Loan?

What is a Pay Day Loan?

Regardless of however disciplined you might be with your finances, life has a funny way of putting us in emergency situations where we necessarily need to borrow additional funds from elsewhere to cover for the setback and restore our financial health. That being said, there are numerous short-term credit facilities, such as the payday loans, that can be procured for a shorter duration to recover from a financial shortfall and restore the balance between your income and expenditures.

All you need to know about payday loans
As the name suggests, payday loans may be described as short-term borrowing wherein the applicant is required to repay the entire principal amount along with a stipulated fee with his/her next paycheck. Given the fact that it is essentially unsecured, a payday loan typically involves a high rate of interest to cover the enormous risk of default that the borrower poses on the lender. Payday loans are also sometimes referred to as cash advances or salary loans and are extremely helpful in achieving a quick inflow of cash to cover any budget mismatches between paychecks.

Usually applicable for smaller amounts below $500, payday loans can be repaid either by writing a postdated check of the amount due to the lender or putting up standing instructions for an automatic transfer of funds from the borrower’s account to that of the lender. Included on the terms and conditions of the loan agreement, the due date for repayment is typically aligned with the next pay date of the borrower. The borrower can avail the proceeds of the loan either directly in the form of a check or cash or indirectly via a deposit to his/her bank account. The interest rates and fees for payday loans are set by the local state governments and vary largely in different states.

Why payday loans?
Payday loans are indeed a blessing in disguise for individuals who are experiencing a budget shortfall that needs to be fixed right away. Since the emergency needs to be dealt with before their next paycheck arrives, these individuals essentially take out a cash advance on their next salary in the form of payday loans. But are these payday loans really worth the hype? Here is a list of ways in which a payday loan can essentially be beneficial for you.

Fast cash
One of the most important advantages of payday loans is the fact that the applications are typically approved and processed within a matter of hours after the application is submitted by the borrower. Since a majority of the lenders offer the provision of online submission of payday loan applications, the process is extremely easy and simplified for the users to deal with. Usually, the borrower is handed over the funds either on the same day or the following, making it easier for him/her to deal with the emergency on a priority basis.

Easier approvals
Since payday loans are directly linked to the paycheck of the borrower, the lenders usually require the applicants to meet only a few basic requirements as opposed to the extensive background checks involved in the other traditional loans. The borrower merely needs to provide a proof of his/her age (that he/she is at least 18 years of age) and income to show that he/she is currently employed and capable of repaying the loan amount by the due date. Also, the payday loans are typically unsecured implying that the borrower is not required to furnish a collateral for the same. And the best part- most lenders approve payday loans even for those applicants who have a bad FICO score and not typically approved for loans by other places.

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