What Is A Payday Loan?
When something has gained so much popularity and interest of the market such as the payday loans have, there usually is a good reason for that. When it happens in a short time and the market is not yet fully informed, the number of comments and interpretations, including much misinformation appear. Here’s what it actually is.
What is it about and how does it work?
A payday loan is a short term, relatively small amount loan given against the borrower’s next expected paycheck. Short term here usually means a fortnight. Repayment date is often agreed on the borrower’s next paycheck date. The amount is determined by borrower’s income, established by his last payroll, and it’s usually agreed up to 50% of it.
By the common loan classification, payday loans are unsecured and general purpose loans. The term unsecured refers to the lender’s lack of security; this loans’ approval doesn’t require any collateral; down-payment, mortgage or any other kind of a lien. It’s strictly related to your income. General purpose supposes giving you cash money, not crediting your shopping, not related to any specific product or a company.
Are you a payday loan client?
We all have, at least once in our lifetime, faced a situation in which our own fund has been insufficient for an immediate emergency need. Whether you have recently had some investments, or you simply haven’t earned enough to put aside, a payday loan is the solution for this situation. There are things in life that simply cannot be postponed, such as emergency medical procedures, and those whose delay would cause a you a lot of hassle; such as repair or purchase of household appliances, a car, a laptop, and the alike. The payday loan seems like a perfect solution for that kind of unexpected costs. If you are employed and expect your paycheck on time, there’s practically no risk.
‘What if I don’t pay on time?’
Just as in any other loan business, if you exceed the agreed repayment date, some kind of penalty interest will be charged. If you don’t pay at all, you will have to deal with the legal procedure. Again, as in any other loan business. But due to small amount of the loan, related to your income, there is no need for this scenario.
According to its under-coverage this type of loans can be compared with credit cards and an account overdraft. Only credit cards are originally meant for the purchase; payment of bills in the places that they approve of, and if you need the cash you pay quite a high fee. The regular cost of using the card includes interests and the membership price.
Overdraft is also related to your income, but it’s a common situation that people use the entire amount of it, and as there is no defined repayment date the loan remains outstanding for a long time after the money has been spent, during which time the interest is constantly charged.