Payday Loans are short term yet fast cash loans that help you get by through a salary shortage. These payday loans are usually due on the next payday period.
Most financing institution granting a payday loan has a very low minimum loan amount but has one of the highest interest rates. Payday loans are more likely to be provided by small financing institutions and are usually not available through a bank. They are also known as salary loan, payroll loan, cash advance loan or payday advance) This type of loan is typically unsecured where the main criteria for granting the loan is the borrower’s employment or having a regular source of monthly income.
Payday Loans often carry a substantial amount of risk on the lender as it does not have any collateral and therefore unsecured. Most lenders would require the borrower to write a check and the lender will encash the check on the day that payment has been agreed on by both parties. In some cases (especially in third world countries) where the borrower does not have a checking account, the lender would require the borrower to leave their ATM Card and redeem it on the day the loan is due upon payment by the lender.
These establishments who provide this types of loan have been branded with a bad reputation because of the high interest rates that are being applied on the loans. Most often, the borrowers are the kind of people who are already trying to make ends meet hence the negative reputation given to these types of lenders. This type of lending has become very controversial because of the reason that most lenders do not go through an extensive credit review of the borrower before granting the loan.
And with the reason that most borrowers for this type of loan are those who are most vulnerable, most lenders (but not all) encourage these clients to borrow more. Because of this, most countries have established rules to be followed for this type of lending. Although some third world countries have a long way to go in protecting it’s consumers from the high interest rates, this type of lending will continue to be a popular one.