Payday loans are unsecure loans that are meant to be paid back within a month or right after your payday. Payday loans are all called cash advance loans because traditionally they were loans that you would make with your boss with promise to pay on your next pay day. It was like asking for a cash advance on your own salary. This was when an employer would act as both source of income bank and even general store.
Whenever an emergency would happen such as hospitalization or when somebody was in a transition period in their life like getting married or having a new baby it was acceptable to just borrow extra money from their boss. This still happens today in smaller family owned businesses where they allow their employees to borrow against their paycheck. But today health insurance pays for medical emergencies and all companies routinely give maternal leave or paternal leave to new families. Borrowing from your company is not common practice anymore and is usually frowned upon.
But payday loans still remain one of the most popular unsecure loans you can get in the shortest amount of time. Banks give out loans similar to payday loans so long as you have good credit rating and regular employment. A payday loan can be called differently in a bank but the structure is still the same. You are making a loan without the need of a collateral. The only difficulty with applying for a payday loan at a bank is fulfilling their criteria. A bank can also take out payment directly from your accounts to make their balance which is how the assure payments. In some cases you have no choice but to payback your payday loans. A bank will also put penalties on late payments for most loans and they can increase interest rates as a penalty. They will always include transaction fees which can be very high. This is why letting a payday loan go unpaid can result in burying you in more debt than you were in originally. This is the case where a small loan can potentially result in deeper debts.
Aside from banks there are several payday lenders including online payday lenders and payday loans direct lenders. Many payday lenders have opened shop online and you can make speedy loans in smaller amounts. This is usually less than a thousand dollars or no more than $1500 depending on the limits set by the lending company. Most lenders will ask for an applicant’s credit score and payslip for the last few months. A borrower is still applying for a loan using their income as assurance for payment so it’s only natural that a lender will ask for proof of employment and make sure you are not drowning in debt.
Some lenders are more forgiving on criteria for accepting loans they make accept borrowers with a lower credit score or even one without a credit score. But it would be difficult to find a payday lender who will accept a borrower who is unemployed. Lenders with lower criteria can be expected to have higher transaction fees and higher interest rates. But no matter how high interest rates are remember that you can negotiate for lower rates even with a bank. Also remember that there is a limit to how high a lender can post their interest rates and these limits are set by your country’s or state’s laws. Interest rate limit is usually 9% but less than 10%. Your region might also have other restrictions and regulations regarding payday lenders so be sure to check on your local laws before canvassing a lender.
Direct payday loan lenders are reputed to be the fastest lenders and many of them are willing to skip over documents and sureties that other lenders would be conscientious about. Usually direct lenders will not lend more than $2000 a month and they will collect every payday within 30 days.
Check this out Forbes.