What is a payday loan

What is a Payday Loan?

A payday loan, also known as a cash advance loan, or paycheck advance loan, is a type of short term loan that typically ranges from $50-$1000. Almost anyone can be approved for a payday loan because lenders do not check the credit of applicants, and base their loan decision instead on the applicant's current job income. Payday loans can be applied for online, in person, or over the phone in less than thirty minutes, and are perhaps the easiest way to get access to funds with short notice. The following information thoroughly describes what payday loans are and how they can be used to pay bills and other sudden expenses.

The Application Process

Applying for a payday loan is relatively simple, in that it only requires basic information such address, driver's license number, date of birth, and maybe 2 paycheck stubs as proof of employment. The lender will use these paycheck stubs as an indicator of how much the borrower makes, thereby minimizing risk by only loaning amounts that can be realistically repaid based on current income figures. Once the loan is approved, the funds are given instantly in cash, or they can be deposited to the borrower's bank via direct deposit within 24 hours. Just about anyone over the age of 18 with a checking account and a steady job can be approved for a payday loan, however, before applying you may want to consider the following risks.

Payday Loan Risks

After approving the loan the lender will ask the applicant to write postdated check for the amount of the loan, plus the fee. The amount of the fee will depend on the loan amount, but it is usually about 20% of the loan itself. If the postdated check does not clear and cannot be cashed by the lender, this fee will be charged again, along with other penalties that were outlined in the contract terms. This makes payday loans riskier than any other loan type, and explains why it is recommended to use them only as a last resort. People with good credit should certainly consider another loan type, such as a personal loan from their bank, in order to prevent excessive debt accumulation.

What are Payday Loans Used For?

Payday loans are generally only used when funds are needed on short notice, either for an urgent bill or some unexpected expense. For example, an individual may have been sick and unable to work for a week or two, and therefore cannot afford to pay their rent. Applying for a payday loan in a situation like this could provide the relief needed, and the money could be paid back out of the next paycheck. Using a payday loan unnecessarily is not advisable as it will ultimately result in more debt, especially when higher loan amounts are sought. Many people with bad credit have no option but to use a payday loan, in order to pay for living expenses such as groceries.