Payday loans are meant to be very short-term loans lent to an individual until the person's next payday (usually for sums under $1,000).
In come cases the repayment schedule may be 15 to 30 days, but all are significantly shorter than traditional cash loans.
These are also called cash advance loans, post-dated cheque loans, payday cash advances and deferred deposit cheque loans,
and they all have one common purpose: they get you instant cash between paychecks.
Why Do People Get Payday Loans?
While there's always exceptions to the rule, many of people who need to use these type of services have usually tried all other options and are in desperate
need of cash for some reason. Most payday loan providers don't do credit checks (or have lax standards if they do) - so those with bad credit may also find
payday loans one of their few options.
How Do Payday Loans Work?
It's a pretty quick process - you fill out an application, give the lender a few things like photo ID and a recent pay stub (to verify there's another coming soon),
then you sign a loan agreement and make a postdated cheque for the total amount you're required to pay, which includes the loan plus all fee payments.
If everything checks out, you get your money on the spot.
The postdated check is held onto until the loan payment due date, which is typically two weeks afterward. The loan company subsequently deposits
your check (unless you have replaced the check or have already paid back the loan in person).
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The typical requirements to obtain a payday loan are minimal and will most likely include:
- That you are currently employed or have a regular income stream.
- You have to be of legal age, which is usually 18.
- You shouldn't have any other outstanding payday loans.
- Your bank account should confirm a minimum monthly deposit of $1,000 from your payroll or $800 if on a set income.
- You hold a bank account that's been open for a minimum of 3 months.
You will usually also need to provide:
- A form of photo ID - like a drivers license or some other government issued form of ID.
- A recent copy of a bank statement, usually no more than 30 days old.
- A personal check marked "VOID".
- A copy of your most current pay stub.
Here is the catch, these kinds of loans are very costly (to the point they've been accused of usury). Payday loan organizations give the borrower the amount
of the check minus their fee (They get their money up front). Fees (sometimes known as finance charges) are usually close to 20% of your cash
advance amount so for a $200 loan the fee is $40, for a $1000 loan the fee is $200 and so on, making the annual percentage rate for as high as
1600 percent, (which would in fact be usury if charged as such).
If you're even considering a payday loan out of necessity think about this; if you're low on cash this pay period, question whether you will be short
of money when the next paycheck comes around. Remember that you will have to use that next cheque to repay your loan.
Some people might find that once they start with a single payday loan, they have no choice but to borrow money again to meet their obligations and
then repeat this (expensive) borrowing cycle again and again for some time.
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