Many people take personal loans to help them with everyday needs. A payday loan is a little cash advance loan given prior to payday. It is an unsecured loan since no collateral is taken to guarantee that payment will be made. This loan is granted on the premise that the borrower has a previous, current record of employment and proof of salary payments.
The procedure for obtaining a payday loan includes the lender providing the borrower with cash advance which is to be repaid on payday. To guarantee this, the lender needs proof of paid employment. The money involved in this type of loan is generally small and the interest levels high. The high-interest rate is often incurred because of the risk of borrower’s inability to pay off the loan. The only guarantee that the lender holds is a written paycheck issued and signed by the borrower. The information necessary to ensure that the loan will be repaid is taken and the loan transferred directly to the borrower’s bank account.
Payday loans are taken by most people because of the ease of acquiring it. Unlike loans obtained from the bank, no collateral is needed to collect this loan. This is another way to enhance a low credit score; this is apart from accepting an installment loan. Interest rate regulations are created and enforced to make sure that lenders do not escalate their rates with no control.
Payday loans are paid back in one payment. The lender usually has access to the borrower’s bank account so that withdrawal will be made if the loan is not refunded on time. Besides cash transfer, the loan can be made available to the lender in different formats such as a debit card, check or given as actual cash.
Taking a payday loan could become addictive for people. This affinity for payday loans is due to the ease of getting it. It becomes a cycle of constant high-interest debts which will need to be paid. Many financial experts will advise against the continuous use of payday loans because the high-interest rates placed on it don’t permit you to make investments or savings. Three ways to help you avoid taking a payday loan is by carefully drafting and adhering to a budgeting of your income, keeping a spending journal and cutting back on excessive spending.