Understanding Payday Loans
Payday loans are specialized loan products often advertised by check cashers, finance companies, and others. These are typically small, short term and high rate loans that go by various other name as well, such as cash advance loan, post-dated check loan, check advance loan, or deferred deposit loan.
The basic idea is pretty simple to understand. The company offering the loan will typically grant you the loan as long as you agree to repay them on your next payday. Therefore, you can see that these loans are typically short term and usually are only for small amounts, to meet your basic financial needs. They are also unsecured loans, so you don’t have to put up any collateral such as a car, house or other valuables.
The borrower usually writes a post-dated check to the lender to cover the loan amount plus any fees. Then the lender provides the borrower with the amount of money agreed upon. The fees are usually a percentage of the face value of the check. Depending on the lender, you may be able to extend the loan for a period of time, but additional charges will probably be applied to whatever amount you owe.
Under the Truth in Lending Act, the lender is required to disclose the actual cost of the payday loan so you can make an informed decision. Information you should be aware of include finance charges and the annual percentage rate (APR) of the loan.
Payday loans are intended to be a solution for short-term cash crunches that we all find ourselves in from time to time. Because of the high cost of such loans, they are not suitable for ongoing financial problems for which credit counseling or other financial planning would be more appropriate. However, for those unfortunate times when life throws you a curve ball, payday loans can be just what you need to make it till your next pay check.