A payday lender is a lender of a type of loan which is a short-term unsecured loan, regardless of whether repayment of loans is linked to the borrower’s payday. The loans are sometimes referred to as cash advances. Payday lenders rely on the customer having previous payroll and employment records. Since such loans are unsecured, they tend to have unusually high interest charges.The Process:
The lender provides a short-term unsecured loan to be repaid at the borrower’s next payday. There is some level of verification of employment or income of the borrower. Borrowers visit a payday lending store or company and secure a small cash loan, with payment due in full at the borrower’s next paycheck. The borrower writes a postdated cheque to the payday lender in the full amount of the loan plus fees. On the maturity date, the borrower is expected to return to the store to repay the loan in person. If the borrower does not repay the loan in person, the lender may redeem the check.
Payday loans typically involve high interest rates. The interest on payday loans will usually have an APR of about 400 percent. The finance charges on these loans can range between about 15 and 30 dollars for every 100 dollars that is being borrowed. Typically a two week payday loan will result in charges and interest payments that will add up to an APR of between 390 and 780 percent.
Payday lenders – a term used for a wide range of short-term, high-cost lenders regardless of whether repayment of loans is linked to a borrower's payday – have been accused of inappropriate lending to people on low incomes who are often only taking out payday loans because of financial distress. As such payday loans can be very tempting for those who need to temporarily top up their bank funds – who can resist the appeal of instant money appearing in their account, with no fuss?
They charge extremely high rates of interest – reports say that some have gone up to 4,215% APR – and allow borrowers to roll over loans from one month to the next, meaning the interest charges can eventually exceed the amount originally borrowed. Critics all over Europe and US described payday lenders as "legal loan sharks". The industry is under scrutiny by the Office of Fair Trading and faces a tightening of regulation.
Most of the opponents of payday lending want payday lenders to share more data: the idea is that the more lenders know about applicants, the less inappropriate borrowing they would do.
Payday lending is legal and regulated in 37 states. In Georgia and 12 other states, it is either illegal or not feasible, given laws on the books. The industry says the pending bill is filled with consumer protections: the option of a payment plan; a ban on renewing or "rolling over" the loans; and a prohibition against making the loans to members of the military.
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