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Applying for Payday Loans

If you have thoroughly considered your financial situation and ended up seeing a Payday Loan as a sole solution in the given circumstances, you should be aware of all the benefits and drawbacks of getting this "quick cash" as well as understand how it works. Known also as a post-dated check loan, Payday Loan is a short-term loan notorious for high interest rates. There is a wide choice of companies that offer Payday Loans to people who fail to find the money they need in other sources: you can use one of the numerous payday lending stores or online payday loans that are marketed through e-mail, paid ads, referrals or online search.

Regulation of lending institutions is rather tricky, being handled differently in each state. Payday Loans are legal and regulated in 37 states, and illegal or not feasible in other 13 states. Some states limit the number of loans a borrower can take at a time using statewide real-time databases. Some states have "usury laws," i.e. various restrictions or mechanisms regulating or limiting a number of loans per borrower per year, a number of loan renewals, or a number of loans outstanding. They also define permissible lending terms and rates. Lenders are certainly interested in fostering and developing payday lending practices, while advocates of consumer protection and opponents of lending industry strive to outlaw these high cost loans altogether.

US state laws restrain charging of fees other than the fees permitted by law, and the lenders are required to disclose the cost of the loans. Before you sign for the loan, payday lenders are obliged to give you the finance charge and the cost of credit on an annual basis, that is annual percentage rate (APR). The annual percentage rate is basically based on the sum you borrow, the interest rate and credit costs, as well as the length of your loan. Finance charges on Payday Loans are normally within the range of 15-30 percent of the amount for the two-week period. In terms of annual percentage rate, it ranges from 390 percent to 780 percent. In other words, though the fee of $15 to borrow $100 for two weeks may seem reasonable, the annual interest rate on that loan will be 360 percent, which may become quite a serious problem if you extend the loan month after month.

The process of application for a Payday Loan is rather simple and can be described as several steps or stages, the first stage naturally being making your own research. You should carefully study the terms, interest rates, and other fees the lender will charge. It is a good idea to start by looking for payday lenders in the yellow pages. This way you can find addresses of available Payday Loans in your area. Make sure you have the essentials such as one or more pay stubs from your last employment as a proof of your steady source of income, photo identification, and recent bank statements. Note that individual companies may have their own underwriting criteria.

Assuming that you know exactly why you need the quick cash and what sum will get you through your financial problems, you should start comparing the deals payday loan companies in your area offer. As the deals may differ much, choose the one that offers less interest rates or fees.

As soon as you have chosen the most suitable Payday Loan store, you can fill up the application papers and then wait for approval. Note however that though the approval ratio is rather high, not all sums requested will get approved. Your creditworthiness will be checked based on your recent employment pay stub. You will be notified whether your request has been approved, turned down or you can be offered only a smaller amount.

When the final agreement on the amount you can borrow has been reached, you write a postdated check for the sum you want to borrow plus the interest rate. The lending company gives you the amount of the check less the fee. For instance, you write a personal check for $460 to borrow $400 for up to 14 days. The payday lender agrees to hold the check until the loan is due, usually it means until your next payday. On the maturity date, you can opt to redeem the check by paying $460 in cash, or renew ("flip") the loan by paying off the $460 and then immediately taking an additional loan of $400, which is equivalent to extending ("rolling over") the financing for another 14 days. Remember that you will be charged new fees each time the same loan is rolled over. Flipping or rolling over the loan is not allowed in many states.

Before you sign the contract, the lending company representative will explain the contract rules and regulations to you. You will receive the money you requested along with the signed agreement about a certain due date when you will have to pay the loan back according to the terms stated on the contract, plus the interest. The latter part contains the biggest risk for a borrower, since depending on the repayment plan, he/she has 30 days to pay back the loan with the interest, and in case the borrower is late or missing payments, the loan may incur additional fees or an increased interest rate. It can increase the possibility of debt default and ruin a borrower's credit history and credit score.

You can opt to apply for Payday Loan not only in person, but also on the phone or on the Internet. Traditional way of applying for Payday Loans through lending agencies may take more time than online lending. You can receive the cash you need quickly filling out an online Payday Loan application within minutes. It will allow the necessary sum to be deposited in your checking account almost in no time and then electronically withdrawn on your next payday.

If customers fail to repay the loan at scheduled time, they will have to pay off their debts through mandatory salary deductions including taxes and penalties. For such borrowers to be able to get out of the debt cycle many states offer extended payment plans. Therefore it is important not to resort to Payday Loans too many times. Building up an emergency fund which may cover some unexpected costs is a good idea for all who don't want to find themselves in a greater financial trouble.