A payday loan is obtained from a cash advance office that lends borrowers money without them having to complete a credit check through a bank or financial institution. Most payday loans are administered in $100 increments, depending on the financial status of the borrower. Payday loans must be paid in full by the due date or harsh penalties can be applied.

Significance

A payday loan is a convenient way for those who are short on cash to receive a cash advance from their next payroll check. Most payday loans pay in cash so that money can be obtained instantly. Unlike a bank, there are no rigorous standards to qualify for a pay day loan. Collateral such as a lien or down payment is not required. Many people with poor credit or unforeseen expenses such as medical bills or family emergencies utilize payday loans.

Considerations

Before signing an agreement to obtain a payday loan, one should take into consideration that the loan has to be paid in full by the due date. Often a personal check is held until the money is paid, and this secures the payday loan in the event of default. One must also understand that the money is only being borrowed and the full amount must be paid back per the installment and loan agreement.

Learning how to properly budget funds will prevent having to borrow from a payday loan company in the future. Poor budgeting can result in residual borrowing from a payday loan company accruing fees every 2 weeks and never really paying off the loan, turning it into a revolving line of credit and costing the borrower hundreds or thousands of dollars each month. There are steep fees involved in borrowing from a payday loan, often $20 to $30 per $100 borrowed.

Function

Payday loans are issued to borrowers who can prove they have a secure job or a residual income coming in every month. Once the applicant provides contact information as well as a blank post-dated check, the application is processed. References and family members may be contacted to verify credibility of the borrower. Cash is delivered on the spot to borrowers to spend as they please. The money is due per the loan agreement on the specified date and should be paid in cash, and then the blank check will be returned to the borrower.

Time Frame

Most payday loans can be obtained in 1 business day if the loan application is complete and accurate. A borrower can expect to go home that day with the borrowed money. Most payday loans have to be paid back when borrowers get their paycheck, which is generally every 7 to 14 days, although borrowers who are paid monthly may be allowed to pay the loan back in 30 days. The fees are instantly taken out of the cash dispersed at the time of the loan origination. Once the loan has been paid in full, the borrower may request a new loan with the same terms as the last one (except it will have a different due date).

Warning

If one fails to pay back the loan on time, the payday loan company will collect the money using the check held as collateral. Money needs to be in the bank if the check is processing, otherwise it will cause the client’s bank account to overdraw and the payday loan will remain unpaid. An unpaid payday loan account can be handed over to court for collection, and a bench warrant will be issued. An order of arrest can also be enforced. When the loan remains unpaid and the check bounces, it is considered to be criminal and prosecution can occur.