Payday Loans: How They Work, What They Cost

How do payday loans work? This is one question that each one of us thinks before availing a loan for ourselves.

A payday lender first confirms your income and salary account information. Cash can be delivered in as little as 15 minutes at a store or probably by the next morning with the mode of an electronic transfer if the transaction is carried out online. The best part is that these loans can be easily carried out and in today's fast paced world there is no credit check.

In exchange for this, the loan lender will demand a signed check or for the permission to be able to electronically withdraw money from your salary bank account. The loan will due immediately post your next payday, particularly in two weeks or sometimes in one month.

If the loan will be granted at a store, the lender will see to it that an appointment is made for you to return when the loan will be due and call a day or two in advance of it. If you will not show up, the lender will encash the check or process the withdrawal of the loan amount plus the interest applicable. Online payday loan lenders will begin an electronic withdrawal.

These loans could be processed through a direct payday lender, that makes its own decisions about brokers and loans that simply sell your requirements and information to the highest bidder. If you want to acquire a payday loan it would be advisable to go to a direct lender.

How much can I borrow?
Cash loans can be limited to not more than 25% of a borrower’s gross monthly salary amount if that is less. Certain lenders or institutions can cap certain loans at 25% of the borrower’s gross monthly income rather than opting for a fixed amount. This will not indicate that you’ll be approved for the maximum amount given by law. A payday lender shall initially consider your income followed by your expenses and also your payday lending history to find out what is the amount you can reasonably be expected to pay back.

The industry has also calculated that in certain cases the average payday loan to be repaid could start from a minimum of two weeks to a maximum of one month.

What does one require to get a cash loan?
To obtain a payday loan, you basically require an active salary bank account, an ID proof and proof of income such as payslips. The minimum age bar must be at least 18 years.

You do not require good credit to apply for a payday loan. Therefore, have a great benefit over other loans. However, an important thing to note is that one could be rejected for a payday loan in spite of having a regular income and a salary bank account for many reasons. Lenders make sure to consider a specialized consumer reporting agency to see to it that you don’t have any outstanding small payday loans, a wage garnishment or any other kind of judgment or review against you or even a history of bankruptcy or bad checks.

Other such reasons can include:

• You don’t make the minimum threshold of salary required or enough amount of money.

• You don’t fulfill their repayment conditions.

• Some payday loan lending institutions may have particular laws and regulations putting a bar or limiting the amount of income one can spend, and each lender might have their own proprietary procedure or algorithm to calculate the risk that you won’t be able to repay.

• You have an existing outstanding loan.  Lenders have associations with a company that can actually track loans in real time.

• You have a bankruptcy in recent times.

• You have cases of many bounced checks recently.

• Cases where you have not been employed long enough.

• Your salary bank account has been opened recently or if you have joined the job recently.

If the loan collection agency will further calculate if there is only a very minute chance of the loan getting repaid in time, it might cut the losses and also report the default case of the loan repayment to the concerned credit bureaus at the earliest. If the agency has a particular chance at getting paid on an immediate basis, it would be possible to likely hold off on reporting a skipped or missed a payment to utilize it as leverage.

How much does a payday loan cost?

The cost to avail a payday loan differs according to the lending institutions and by the lender. Lenders that give loans specifically cap the maximum interest allowed. Institutions that sanction payday lending let lenders roll over a loan, in such cases, the borrower pays solely the interest fee and will further extend the loan for only two weeks. He also then gets a recent second interest fee on the loan attached to it. Certain institutions don’t prohibit a loan borrower from availing out back-to-back loans that have the same effect. Mostly, the consumer loans are plain labelled by an annual percentage rate that encompasses the overall cost of fees and interest paid over and above a year.