Payday loans are short-term loans offered for a limited period of up to120 days. They are offered to help borrowers manage temporary fund flow issues between their paydays. Payday loan companies are profitable as the interest rate charged by them on payday loans is very high. They are popular as they process an application and release the funds to a borrower within 48 to 72 hours. Most payday loan companies in the US offer enticing deals to attract people who are looking for a quick source of funding. The criterion for approving a payday loan is very simple. The documentation required from a borrower to prove his or her eligibility for a payday loan include proof of identification, proof of a checking account and of a valid employment status for a minimum period of 3 months. Payday loan companies do not conduct a credit check on an applicant. Some companies require that the applicant should have a minimum monthly income as it shows the ability to repay. Different companies have different rates of interest. In general, lending companies offer payday loans at very high interest rates that may go up to 300%. Typically, most payday loan companies sanction an amount that is 25% or lesser than an applicants gross monthly income. They ensure that borrowers pay back on time by either acquiring post-dated checks in advance or an authorization to directly debit their checking account Payday loan companies typically target their communication and promotional activities at individuals who are caught in a fund flow crisis and are desperate for cash. They offer a smart payment structure appeals to a borrower as free-cash. However, this is not so, as payday loans are high-risk loans. In addition to the high initial interest rate, when a borrower does not pay on time, the interest rate and consequently the debt amount continue to rise progressively. Many individuals who borrow from a payday loan company fall into a debt trap and have ruined their lives. In spite of this, the payday loan companies are legal in their operations as long as they inform an applicant up front about their payment terms. |
