Payday Loans

The payday loans are small and short term loans which target to cover the expenditures of the borrowers till their next pay. These are also referred to as cash advances. These programs have been framed in such a way so as to meet the unintended financial contingencies of the individuals. The next paycheck is used as collateral and credit is provided to the clients without doing any credit or background checks. Legislations governing these programs vary across countries and in the United States, these vary across states.

This has its origin in a traditional retail model. In this model, borrowers visit a payday lending store in order to secure a small cash loan. The payment is kept due till the borrower receives his or her paycheck. The borrower however, writes a post dated check in favor of the lender of the full loan amount and the fees. On the day of the maturity, the borrower is expected to visit the lending store. If the borrower does not turn up in time, the lender has all the right to redeem the check. If the borrower does not have the required amount in his or her account, the check is bounced. In that case, the borrower has to pay even the bounced check fee, in addition to the entire check amount.

In modern times, niche technology has led to the introduction of online payday loans. Here the customers fill the loan application form. In some cases where proper documentation is required, the application is faxed to the lending house along with the supporting documents. Subsequently, the loan amount is transferred to the account of the borrower. On the day of maturity, the loan amount along with the requisite charges are directly debited from the account of the customer. In majority of the cases, credit history of the applicants is not verified the lending agency.

Payday Loans in Different Countries around the World

The idea of payday loans has gained popularity in many countries around the world. Below here we describe about the operation of this financial instrument in some of these countries.

Australia

The concept of payday loans have got huge acceptance in Australia. This has become a major part of the small loans market in the country and has tremendous potential to grow. This robust growth reflects the spectacular success that it has made in United States, Canada and the United Kingdom. Though the current regulations associated with these products are relatively lenient and gradually the regulatory authorities of the country are beginning to monitor this market. Few Australian states such Queensland and New South Wales have imposed a 48%-APR maximum loan rate which includes brokerage and fee.

Canada

The practice of payday loans in Canada is very limited by existing laws. According to the Criminal Code of Canada, charging of any interest rate higher than 60% per annum is treated as criminal offence. Anyways, the usage of this financial instrument has grown rapidly in the North American country.

United Kingdom

This is growing at a fast clip in the United Kingdom. In fact between 2006 and 2009, the number of people opting for such loans has grown nearly four times—from 1.2 million to 4.1 million. There are no regulations in the country restricting the rate of interest that the lending agencies can charge. The lending houses are compulsorily required to reveal the effective annual percentage rate (APR). According to a study by Consumer Focus, the cost of obtaining an online loan is greater than the cost of obtaining a loan on the High Street. This is because of higher rejection rate of the applications, higher chances of fraud & default in case of online application. In 2009, the payday loan industry accounted for nearly one-fifth of the total lending of the country. Share of the Dollar Financial Group, the largest lender in the country, is around 25% of all the payday loans in the country.

United States

This is indeed growing at a rapid rate in the United States. Regulations governing the working of these loans vary state wise. Among the 50 states of the country, this is legal in 37 states. The finance charges associated with these loans generally, range between 15-30% of the loan amount for two weeks. This actually translates in to 390 to 780% APR. The states where usage of this financial practice is banned include Arizona, Arkansas, Colorado, Connecticut, Georgia, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New York, North Carolina, Pennsylvania, Vermont and West Virginia.

Requirements to Apply for Payday Loans

Numerous companies have come up with small and short-term loan solutions for the individuals. The criteria to avail this program slightly vary across companies. But there are some common requirements that an applicant must fulfill. These common requirements are listed below.

-The applicant should be an adult. He or she should be of age more than 18. -The applicant should possess checking or savings account. The account should be operative. -The person should be currently employed or should have income of at least three months.

Choosing the Lending Agency

The loan amount can be utilized for a variety of purposes, which entirely depends upon the borrowers. There are numerous payday lenders, who are in operation. Many online lending agencies have also entered in to this business. At the time of picking the online payday lender, the borrowers should be very careful. They should look into few aspects which are listed below.

-If the content in the websites of the online lending agency contains many spelling mistakes and grammatical errors, then it can be inferred that the company is not professionally managed and it may not be trustworthy. -Any authentic company should post privacy policy in the website. While picking the online lender, the borrower should keep this in mind. -Detailed information on the steps that the company follows to restore and protect the financial information of the customers, should clearly elaborated on their sites. -If the company is rewarded security certificate from any third party agency, it augments the credential of that company. It is advised to the borrowers to pick this type of company only.