There is an affordable type of financial loan that is being offered in the market today and this type of loan is referred to as payday loan. Payday loan is a short-term that have three distinct features namely that the loan amount is relatively small, full payment is usually due to the borrowers next payday and borrowers are obliged to give the lender or lending company access to his or her checking or ATM Account or in some instances require the borrower to provide the lender a post-dated check for the full amount of the loan plus interest and finance charge.
A payday loan can also be categorized as short-term small loan and although the loan has basically three features, lenders or the lending company can include a variation of the loan like including an interest-only payment, lump sum payment and/or loan renewal of the loan. Small lending entities such as pawnshops and other retail outlet are the normal source of payday loans.
The loan amount is immediately issued to the borrower upon applying from the outlet. There is no extensive credit or background check on the borrower and it is only the loan contract that the borrower has to sign that will indicate that the borrower must repay the loan in full once he or she has received his or her next paycheck.
The drawbacks of a payday loan are the more than normal interest rate and high financing fees. The usual guarantee that the payday loans will be re-paid is the borrower’s obligation to issue a post-dated check to the lender (upon receiving the cash loan) which includes the principal amount, finance charge, interest amount and other incidental fees of the loan.
As soon as the payment due date arrives, the borrower is expected to go back to the payday loan outlet and pay in cash the total amount due on the loan. The lender, in turn, will return the post-dated check earlier issued to him but in the event that the borrower does not arrive at the appointed time, the lender has the right to the cash or deposit the post-dated check. There will be additional surcharges and a possible lawsuit in the event that the post-dated check issued to lender bounces.
A payday loan is also a type of personal loan but with a much higher risk and to lessen this risk, payday lenders require the borrower to show proof of steady income and this usually comes in form of multiple payment stubs, business license or employment certification from the borrower’s employer.