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Aug 23

How Does a Payday Loan Work?

One of the most popular types of loan that is growing fast in the financial industry are payday loans. Payday loans, which are also known as salary loans, are short term loans that are unsecured regardless if the payment is done through a dated check against the borrower’s payroll account. This type of loan is one of the easiest loans to avail of as the borrower is only required to have an existing payroll and employment records. It is seldom that a payday lender checks the credit score of the borrower thus making almost everyone eligible for a loan.

Here are a few points you may need to understand about payday loans:

  • Rules Governing Payday Loans Vary Widely.

Laws on payday loans and regulations that govern them widely between countries. In the US, it can also vary between states. An existing set of laws and regulations are established to ensure that excessive charging on interest rates are prevented. These laws and regulations protect the borrower from unscrupulous lenders that may take advantage of the borrowers need for cash. If you are considering a payday lender who is working around the area, make sure that you check out the laws and regulations that govern payday lending.

  • Payday Lending Involves High Interest Rates

Payday lending is one of the types of loan that has the highest interest rates being charged by a payday lender. This is the reason why certain countries (and states) ensure that laws are in place to protect the welfare of the borrower. A payday loan charges interest to be paid varies from 350% up to 400% annual percentage rate (APR) under regulated circumstances. In some countries where there are no laws or regulations, lenders charge up to 1000% APR depending on the computations used by the lender.

  • Payday Lenders Only Require Employment

Because payday lending is so easy to avail of, it is becoming more and more popular and often the priority option of those who find it hard to make ends meet. Payday lenders only require a borrower and existing payroll and employment from which the payday lender can collect from month after month while the borrower rolls over his or her credit.