What You Should Have Asked Your Friends About Payday Loan
A payday loan is also called as a payday advance or a paycheck advance. This is a small loan for a brief period of time. The aim of this loan is to arrange for the expenditure of the borrower till the next payday. Generally, these loans range from $100 to $500. The span of the loan is usually two weeks. The annual percentage rate varies from 390 percent to 780 percent. A payday loan is also termed as a cash advance.
Military view
The regulation of payday lending is usually performed at the state level. The United States Congress bought a law into effect from 1st October, 2007 regarding the caps that are lent to military personnel at an annual percentage rate of 36 percent. The Defense Department has the opinion that the payday loans are of a plundering type. The military officers were worried that the payday loans worsened the economical challenges of soldiers, brought security clearances in danger and were a hindrance to the deployment schedules in Iraq. Some of the legislators and regulators of the federal banking are trying to hinder the loans not just for military personnel but also for the borrowers. The cause is that the high costs are considered as an unessential economical burden on the lower and middle class people and these are the main borrowers.
Lenders view
Lenders state that some people in the society have bad credit and hence cannot procure low interest options like credit card and bank loan. For these people, a payday loan is the singular alternative available. The lenders view is opposed by the critics. These state that the borrowers find themselves in an exacerbated situation as the due date of the loan arrives as compared to their situation when they availed the loan. A majority of these people find themselves entangled in a debt cycle. The quick growth of the industry shows a tremendously profitable business model for the lenders. The Center for Responsible Lending has statistics which prove that a lion’s share of the profit of the industry is due to repeat borrowers who fail to repay loans on the due date. As a result, these have to constantly renew their loans and disburse fees every time to the lenders.
Retail lending
The standard procedure of a payday loan is that the borrower approaches a payday lending store and procures a small cash loan. This is in the range of $100 to $500. The due date of repayment of this loan is the next paycheck day of the borrower. This is generally a time frame of two weeks. For this period of two weeks, the finance charge on a payday loan is usually $15 to $30, if the amount borrowed is $100. In other words, the annual percentage rate is 390 percent to 780 percent. The borrower has to issue a check to the lender inclusive of the entire value of the loan and the fees. It is expected that the borrower would return to the store in person on the maturity date to repay the loan. In case the borrower fails to come in person, the lender is left with two choices. The check can be processed traditionally. The other alternative is of electronic withdrawal from the checking account of the borrower.
