The Basics of Pay day Loan

A pay day loan or otherwise known as paycheck advance or cash advances refers to a short-term loan offered to a borrower with the aim of covering their expenses until their next payday.  Regulation, legislation, and restrictions in relation to pay day loans differ between countries and in the case of United States, it vary between states.  In some countries, it is limited by usury laws.  This law deals with the excessive and unreasonable interest rates being applied by the service companies.  To protect the interest of the borrowers, some countries and states in the US apply a limit in the annual percentage rate (APR) in terms of charging interest rates for the short term loans.  Although restrictions are imposed, the interest rates of payday loans are still higher compared to traditional lenders and banks because it carries a significant risk to the lender.  According to a study on pay day loan, the default rate for lenders range from 10-20% and this percentage can cost them ¼ of their annual income hence the justification of a higher interest rate.

 

Traditional payday loan

 

The basic concept of a pay day loan is for a lender to provide an unsecured short term loan to the borrower at which payment is given on the next pay day.  When online businesses were not yet popular, the traditional retail model of payday loan requires a borrower to go to the office to apply, secure the cash loan, and submit post-dated checks.  The payment for said loan should be settled in full and is due at the next pay period.    The post-dated checks are required to be submitted for security purposes only.  It should indicate the total loan amount inclusive of the fees.  When the next pay period arrives, the borrower should go back to the office and pay the loan in personal.  If the individual fails to pay the loan, the lender will redeem the post-dated checks submitted.  In cases where the checks have insufficient funds to cover your payment, the lender can file legal actions against your bounced checks.  This would cost the borrower more in terms of additional fees and increased interest rates.

 

Online pay day loan

 

Now that most transactions are performed online, it became easier for borrowers to apply for pay day loan because it saves them time.  Basically, the steps involved in the online processing of the loan are the following:

 

1. Fill out of the application form – A borrower must accomplish the application form online.

 

1. Submit the requirements – The requirements indicate that one should be a permanent citizen of the country and at least 18 years old.  The documents that the lender would usually require one to submit are the paystubs and bank statements to prove that you have a job and a bank account.  Some lenders would actually omit this requirement but as for franchised or individual companies, they have their own underwriting criteria.

 

1. Verification – The accomplished application form together with the additional documents will be forwarded to the verification officer and validate the information that you have supplied in the form and documents.  Once, everything is verified and there are no loopholes in your application and documents then you are approved for the loan.  This is the standard pay day loan approval process.

 

1. Transfer of money to your account – Once approved, your loan will be transferred to your account.

Internet and payday loan advertising

The internet has been used as a channel and tool for easier transaction and in advertising these pay day loan services to serve your financial needs today.  Some lenders and individual companies have placed their advertisements in blog sites and social media networking sites such as Facebook, Twitter, LinkedIn, Plurk, and many more.  Others use Google or Yahoo ads for more visibility.  In an attempt to lure more people from borrowing, lenders or lending companies intentionally removes the display of interest rates and APR which is a violation of advertising regulations specifically in the United Kingdom (UK).  The UK advertising standards clearly requires in their policy that APR should be declared in any advertisements.

Internet has really played a significant role for many of us.  It is loaded with various information, applications, programs, and tools that are shared for the public.  In the case of these lenders and lending companies, they have used it to their great advantage in terms of giving their business a lift and making their presence felt not only in the online world but also outside of it.  As for customers or clients, one must be wary in dealing and performing transactions over the net because there are just too many scammers and predators lurking around waiting for their possible prey.  Sometimes the advertisements withdraw or hide some important information from you so that you will be enticed to jump on their offer.  Try to be inquisitive and take time to learn and know more about the details of what they are offering.  The information that you will receive will equip you with the right knowledge you need to be able to decide whether or not you have to apply for a pay day loan.