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A payday loan is a very short-term loan given until the person's approaching payday (usually 7 to 15 days), although some can be given for 16 to 30 days. Also known as payday cash advances, cash advance loans, check advance loans, post-dated check loans and deferred deposit check loans; they are all about one thing: obtaining an instant cash advance. These loans tend to be anywhere from $400 - $1000 but could be more if you have the income stubs to back it up.
After filling out an application and providing the lender with such items such as a paycheck stub and a photo ID. You sign a loan agreement, write a postdated check to the lender (for the total amount you will have to pay - the loan amount as well as all fee payments as scheduled.) and receive your money. Your postdated check is held until your loan payment is due - usually two weeks. The loan company then deposits your check (unless you have replaced the check or have already repaid the loan).
Here's the catch, these kinds of loans; while simple to get are usually very costly. These kinds of loan companies offer a person the amount of the cheque, minus their fee. Fees (sometimes well-known as finance charges) are usually about 20% of your cash advance amount hence for a $100 loan the fee is $20, for a $700 loan the fees $140 and so on, the annual percentage rate for payday loans can span from 300% to 1500%.
The most essential thing to consider is your ability to repay the loan, if you are short of money this pay period will you be short of money during the next pay period (don't forget that you also have to repay the loan out of your next paycheck). Some borrowers find that once they begin with a payday loan they have to borrow money the next pay period to meet their obligations and then repeat this (costly) borrowing cycle again and again for some time.
These loans are just like any other kind of debt, but they are considered high-risk loans. If a person discovers that they are not able to pay back the loan, the payday company can seek compensation for the face value of the cheque, court costs and late charges, along with NSF fees. Once a judgment is obtained, the lender may resort to using a collection agency or attempt to garnish your wages.
A good amount of payday loan companies go on to list overdue accounts with the credit bureau - something that could impact your ability to get credit down the road. Try all available routes before using this type of loan service.