Payday Lending
What is Payday Lending?
Payday lending is often referred to as a payday loan, a paycheck advance or a payday advance. Payday lending is extremely popular nowadays and helps people who need a limited amount of funds for a short period of time. This type of lending is named after its short pay term period. Generally the loan is taken out and the person pays back the loan within their next payday. There are many sources where one can take out a payday loan. One factor to have in mind is that payday lending varies from country to country and even state to state.
How Payday Lending Works
Payday lending is rather simple. A small amount of money is loaned out for a very short term of time. The lent out money is used as a way for the borrower to cover all of his or her financial needs for a short period of time and pay back the loan on his her next payday. Once a lender is found, the borrower writes a check that is postmarked for his or her next payday, for the amount borrowed plus interest. This interest can range anywhere from 15 to 30 percent on average.
On the day that he or she should payback the loan, he or she should arrive at the payday store if it is in person, to pay back the lender. Regardless if the person shows up, the lender will have the check on hand to deposit for security.
Payment After Payday
Sometimes, one is unable to pay back the loan on his or her payday which usually complicates the process. In the first case, the store lender can process the check left for them. However, if there are insufficient funds in the back account, the check will bounce becoming a problem for both parties. Not only will the borrower need to payback the original loan and interest, he or she will also have to payback the fee for a bounced check and additional interest on the loan.
Solutions for Borrowers
Every state has different legislation regarding payday lending. Some states, such as Washington in the United States, offers borrowers extended payment plans. These payment plans are provided at no additional cost and will help borrowers to work off their newly acquired debt. Another solution that is commonly used is a flipped loan. In this case, a borrower is able to pay off the loan but requires more money. Therefore, they have extended the loan for an additional two weeks. This may be considered illegal in certain states so you should be aware of roll over loans or flipping the loan regulations.
Payday lending may not be the best solution for everyone. There are certain types of cases where these short term loans are rather advantageous. However, if you have a long standing debt, these short term loans may do more harm than good for some. Speak with a financial adviser to determine if payday lending is right for you.
Online Payday Lending
Payday lending is a unique way to pay off expenses on a short term basis. Basically, payday lending is when one takes out a short term loan from a store or online source and promises to pay back this loan on his or her upcoming payday. With the use of the internet, online payday lending is quite common with ads and email promotions sent daily promoting the idea of online payday lending. If you know that payday lending can be beneficial for your financial needs, it may be more advantageous to take out a loan online through electronic transfers rather than finding a payday lending store near you.
Basic Payday Lending
Traditional payday lending is not very different from online payday lending. The idea is rather simple. A borrower asks for a loan, usually for an amount between $250 and $2500. The borrower writes a check that is predated for the day that he or she gets paid on. At this time, the check is written for the amount borrowed plus an interest fee which can vary normally between 15 to 30 percent of the amount asked for. On the day of payment, the borrower can pay back the money or the lender will automatically deposit the postmarked check. This is basic payday lending.
How Does Online Payday Lending Work Specifically
Obviously, there is a difference between online and offline (store) payday lending. Online, one can do everything from the comfort of his or her own home or office. Plus all of the payments are electronically transferred making the payments much faster and more efficient. Online payday lending is normally advertised through online ads on websites, email promotions, referrals, paid ads and online search engines.
Additional Information Needed for Payday Lending
Once you find the online provider that is secure and fits your needs you are ready to begin your online payday lending. You will normally be required to offer some certain types of personal information. Such personal information includes your name, address, phone number, bank account numbers, social security number and your employment information. These are all necessary pieces of information since you will need to electronically transfer payments. Plus, these online companies want to make sure that he or she will eventually have the funds necessary to pay back the loan come his or her next payday.
Automatic Withdrawal of Lending Funds
All of this information will be available on an online application that resembles a tax form. Every piece of information will be kept confidential and is used for the payday lending purposes. You will be asked to submit separate information through fax including recent pay stubs to verify your employment status, copies of a check and the required signed paperwork or application. Once the information is verified, the short term loan will be direct deposited into your bank account for your use. The lender will then take out the finance charge and the payday loan automatically and electronically on the borrower’s next pay day.
The Controversy Surrounding Payday Lending
Payday lending can be a great solution to short term financial problems. If you are a bit short on cash and need an advance, payday lending may be your solution. You will know that you can pay back the funds on your next payday and be done with the whole process. However, if you are trying to find a way to pay off debt and know that you will be unable to pay off this short term loan between now and your next payday, this payment system may not work at all for you. This is one of the greatest arguments against payday lending.
Credit Dependency
Many officials are trying to lock down on payday lending because they believe that this type of financial practice only leads into a cycle of credit dependency that is virtually impossible to get out of unless the borrower wins the lottery. The outrageous APRs add to the financial fury making this an outlandish practice that should be banned.
Targets of Payday Lending
Marketers of payday lending are smart as they seek less educated and money deprived families to prey on. Low income families are usually the normal victims of this type of lending since they are unable to secure regular loans, they seek out anyone willing to give them loans. In return, many payday lending operations do not promote financial banking ideas such as asset accumulation nor savings. Once the family is unable to pay for the loan, these loan companies are then able to deplete any finances and or assets that the family possesses.
The young are another target group that lenders seek out. Between student loans, trying to become independent and not reading the fine lines, students can easily become sucked into this cycle of debt. Normally these deals look very advantageous but what is not highlighted are the immense interest rates. Students who do not speak the language of banking, may not understand what these interest rates mean and how much they are really going to have to pay back. Students end up having to renew the payday lending loans plus the interest fees every two weeks for as long as it takes to get out of this cycle of debt. The poor also suffer from this same cycle of debt as students in most payday lending operations.
The Defense
Many believe that payday lending is crucial to those people who may have made mistakes in the past and are now unable to receive ordinary loans. Therefore, payday lending is used as a service to finance high risk borrowers and not to take advantage of the previously stated groups of people.Short term loans are made to massive amounts of people who are unable to gain any sort of credit whether it be through traditional loan companies or even credit cards. Since other financial institutions will not finance these people, payday lending saves the day. Payday lending certainly has its advantageous and disadvantages but it is up to the potential borrowers to make the right decision.
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