A payday loan is a small, temporary loan and is given without any collateral, so it is unsecured. These loans are taken by people to tide over a small cash crunch during a short term and when they are sure about their earnings and repaying the loan soon. This is similar to the line of credit against a credit card.
One thing is common and that is there is nocollateral against which this loan is given. But the lender checks previous employment records and salary slips or certificates, to make sure that the borrower will be able to pay back the amount soon.
There was a time when anybody who wanted a loan had to go toa bank and take a loan. Then the trend was to go to a lending store and get a loan based upon thefinancial records. The borrower had to produce a post-dated check when the loan would be repaid orhe would ensure that he went back to the lender to repay the entire amountand take the check back. The other option was the lender would take the check to the back and encash if the borrower was unable to come.
But now the entire scenario has changed. With the entire financial world revolving around the internet,the loans have also gone the digital way. Now people apply for a loan on the internet, complete all the formalities and the amount is credited to his account. There is no personal interaction between the lender and borrower. The details of the accounts are available to the lender and the repayment can be completed by debiting the account as when the amount is due.
The system works to the advantage of both the borrower and lender. The borrowermay be desperate to get some money to handle anemergency, like a sudden sickness in the familyor repairs needed in car or house. Many young guys like to go for a vacation now or buy a gadget now with a short term loan and pay it back later. Sometimes people need to take a small amount of loan to pay back a credit card amount that is due immediately. Similarly, some people take this short term loan to improve their credit score. These short term payday loans do not affect the credit score so people prefer this route.
Though the term payday loan means the amount hasto be paid back at the time of next payday. But sometimes the duration of repayment extends to three or more months. The size of this loan is not very huge owing to the fact that there is no collateral for this kind of borrowing.You can apply from anywhere in the country and the loan amount may be deposited into your account on the same day or in a couple of days.
Online loans are very beneficial for people due to their instant availability. These are very convenient as the loan amount and duration are flexible, from a few days to a few weeks. You cansearch online for the best possible rates. This is a great boon for borrowers as they can borrow from anyone that they like. Otherwise in the past people had to go to the nearest lender in their vicinity and were forcedto take the loan on his terms.
The lenders could chargeany amount asinterest. In fact,law has become stringent now as the lenders became greedy and started charging very high interest rates, more than the principal amount. Now with online lenders, the process and rates of interest are very transparent. A borrower can go to any website and find out everything about the lender. There are no hidden charges anymoreand most of the lenders do not charge any application or processing fees. All they charge is an interest and that too is regulated by the government.
These loans can be used for any purpose, and there is no restriction on it. Vehicle or home repair, special occasions, weddings, unexpected bills due to an emergency or paying off credit card debt are the most common reasons for taking a payday loan