What is a Payday Loan
The loans that are usually available at the storefronts and last for not more than a few days are known as payday loans. These are short term loans and are now even available online. The application process is quite simple and can be done in a matter of a few minutes. That is the same reason that the people who are usually in a hurry are the ones who take these loans often. However, the creditors do check the individual’s bank account and income levels before lending them the required money.
How Does it Work
The funds are simply deposited into the verified bank account once the loan gets approved. The point to be noted here is that the individual taking the loan will have to write a post-dated cheque for both the amount and the interest rate charged on it. This act is of great significance as the post-dated cheque gives a kind of surety to the lender that he will receive his money back on a scheduled date and will not have to crack a hard nut for that. This post-dated cheque will eventually coincide with the payroll deposit which ensures that the amount written on the post-dated cheque will be cleared timely. It is the same reason that they are known as payday loans.
Five major reasons why people take the payday loans
One of the common reasons behind using payday loans is that they are used for cancelling out other debts. Which means that people usually take these loans to pay off the other loans that they have taken, usually from the financial retailers? This is done because of the difference in the interest rates as that imposed on the payday loans are lower.
It’s a Form of Short–Term Loan
It is because a payday loan is usually about two week’s long and the interest rates are low in comparison to the usual loans as their payback time is quite long and the interest rates are therefore quite high. This helps the borrower in saving a lot of money.
The Redundancy Cost Gets Covered Up
Staying out of work or being redundant is highly successful. Therefore a payday loan helps an individual in paying the basic bills and in grabbing the things that are the necessities easily.
Improvement of Bad Debts
The people with a pathetic credit rating will never be able to get funds from the higher financial institutions of the lenders such as the banks. In contrast to this, the payday lenders set aside the borrower’s credit history and grant them the required funds. This will in turn raise the borrower’s credit score as he will always be able to return the money with the lower interest rates and his credibility will enhance thereof.
This is the biggest reason why people prefer payday loans. As mentioned earlier the interest rates imposed on funds taken from other sources are very high and with a long period for returning them. This enhances the return amount to a high level and the borrowers then feel immense pressure to cover them up. However, the interest rates on payday loans are quite low and the borrowers can easily return the taken amount in a short period.
These are all the top reasons why people prefer taking payday loans rather than taking the funds from other common sources.