What is a Payday Loan – Basics explained

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Payday loan is often featured in some advertisements these days, and most of the check cashers, finance companies, and others are making this small, short term and high rate loan that go with various names, such as payday loan, cash advance loan, post-dated check loan, check advance loan, deferred deposit loan, or high-risk loan.

A payday loan is just pretty simple to comprehend.It is basically a small, short term and unsecured cash advance loan granted to you until your next payday to meet your financial needs.As a result, such loans are applicable for short term cash management only, and are not purposed for larger financial issues that are generally resolved by consumer credit counseling.

A borrower typically writes a check to the lender for the amount borrowed, along with the fee, to pay back the payday loan.In this case, the lender usually provides the borrower the amount of money or minus the fee.And, speaking of fees, the fees charged for a payday loan is typically a percentage of the face value of the check itself or sometimes a fee charged per amount borrowed. For example, for every $50 or $100 loaned.There are also some cases in borrowing a payday loan that when you extend or “roll-over” the loan, say, for another two weeks, you are required to pay the fees for every extension placed.

It is given that under the Truth in Lending Act, the cost of the payday loan, just like the other forms of credit, is required to be disclosed.So among the added information that the borrower should obtain particularly in writing are the finance charge as well as the annual percentage rate or the APR, which is usually considered as the cost of credit on an annual basis.

A summary of all such facts indicates that a payday loan may not be the right choice for all.An interesting aspect is that there are some options available other than payday loans.You need to consider all possible choices essentially before fixing upon a payday loan.An important suggestion is that when you are in the need for credit, look and compare all possible offers.It is essential to consider small loans from credit unions, and also look for the credit offers with lowest APR.An advance on your credit card is an advantage, however this could prove to have higher interest rates as compared to other sources.Try and figure out all possible terms before taking any decision.

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