What are payday loans? Payday loans are unsecured, short term loans that are basically cash advances on the next paycheck of the borrower. They are intended for use when people are temporarily out of money but expect to receive it soon, and can pay off the loan within a short time period. Borrowers, in most cases, will write out a check with a future date that the lender can withdraw at that time.
In the US, payday lenders have to use industry standard collection practices for debt collection. In the past, some payday loan lenders have threatened borrowers with check fraud prosecution. This is illegal, however. There are benefits and risks to using payday cash loans. One benefit is that they are much easier to obtain than other, more long term forms of loans. Often, one only needs a record of employment or some other way to show they are likely to be able to repay it. It is even possible to get online payday loans.
The downside to payday loans is that they have higher interest rates. Compared to long term borrowing solutions, the rates are actually quite high. However, this is not a very fair comparison since most people only use payday loans for short periods. This increased amount also accounts for lender risk, considering that there is a 6 percent default rate.
Today, many people use online payday loans because these loans are more accessible, and sometimes this accessibility also makes it easier to pay them off. On the other hand, online payday loans can often be tempting to use in impulsive situations, especially because they are so close at hand.