Payday loans are valuable resources for anyone who needs some emergency cash in times of financial trouble with the promise of repaying by the next working paycheck. These are unsecured loans with a short repayment period; often, the duration matches a borrower’s payday schedule. They have been marketed as a quick and easy way to help people access to cash between paychecks. The entire application process of getting this cash can be completed in a matter of minutes, and the borrower doesn’t need a collateral credit score to get a loan. The lenders only need to verify the income to determine a person’s ability to repay, then deposit the funds into a verified bank account.
In most cases, the payday loan never exceeds $1000 because lenders are aware that a substantial size loan increases the likelihood of default. Borrowers are required to pay within the scheduled date, with the lender requiring a person’s paycheck to be automatically deposited into the verified bank. Another option for repayment is for borrowers to provide a postdated check for a full amount borrowed plus fees and interest for the loan. Loan defaulting can lead to the lender suing the borrower.
Growth of Paycheck Loans
There are numerous payday loan companies that target are struggling people who don’t have access to bank loans. The lenders tend to be concentrated in locations with higher poverty rates, lower income levels, and single-parent households. The growth and success of this industry show how the loans are in demand and fulfill the need for many people. Most households are living on a paycheck-to-paycheck basis, which means such families do not have any savings. Bad credit often goes hand-in-hand with inadequate savings, which means this industry is here to stay for a long time.
The payday loan businesses began to spring up in the 1980s and 90s to help individuals in financial need. Today, there are more than 20,000 lenders in the United States, with approximately 12 million Americans using the loans each year. Technology has also allowed payday loans to be offered online, which has seen young people becoming targets for payday lenders. The online investments have the same basic structure as storefront loans except that communication is conducted online.
The Harm of Such Loans
A payday may seem like the only option in financing an emergency, but it has done more harm than good. They are some of the reasons why people are trapped in cycles of debts due to the high-interest rates. Most borrowers do not know about interest rates when getting the loans, and they end up struggling to repay them. The most apparent issue with payday loans is the high-interest rates, which is about 300 percent or more of the borrowed amount when charged for two weeks. For many people, such an interest rate can put them into endless pits of debts and a need to hire again. A borrower may be required to take another payday loan to facilitate the first one, and their regular expenses will not.