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We live in difficult times when the worldwide recession of last year has run amok through the finances of most people and left them quite high and dry. This is why there are so many people who find it rather difficult to make both ends meet. On one hand people have lost jobs or suffered pay cuts. On the other hand, prices are spiraling incessantly because of rampant inflation that is the order of the two. Decreased income coupled with rising expenses have brought many families to their knees and made them almost wonder as to whether they will be able to make it through the money on rather diminished means.
This is where payday loans make their presence felt as a knight in shining armor for such economically disadvantaged as well as troubles families. Payday loan are also known as paycheck loans or cash advances where people are given loans with the understanding that they would repay the loan on the next payday or salary day. Hence these loans are quite handy in bridging temporary or short term needs of individuals and families that could need cash in the short term between two paycheck days.
Most lending companies make payday loans to those who have a valid bank account with a healthy balance of funds in it. The borrower’s identity is also verified as well as source of income so that risk of default may be minimized.
One of the key aspects of payday loans is the cost of the loan which is invariably on the higher side. While these loans are able to come to the aid of borrowers in their time of need, lenders do extract their ‘pound of flesh’ in terms of the kind of interest rates that are typically applicable on such loans. There are some cases where retail stores extend credit to their customers which are in the form of payday loans. Customers can buy groceries or other essentials, which are charged to their account, with payment being made to the store the next payday. It goes without saying that the finance charges or interest payments for a typical two-week credit is in the range of 15 to 30 percent. When converted into annual percentage rate (APR), the rate works out to a whopping 390 to 780 percent, which indicates the exorbitant cost of funds that are applicable on payday loans. In most cases, the borrower is expected to make good the loan next payday by making cash payment or perhaps by means of a post dated check where the loans as well as fees or interest rate has to be paid up and the loan squared off then and there.
There may be some instances where the borrower may not be able to make good the loan in person on the designated day. It is here that the lender has the option of performing and electronic withdrawal from the borrower’s account. The main disadvantage of payday loans arises from the high rate of interest which is generally so prohibitive that it puts off most borrowers unless they really need the money urgently and desperately. After all, the prospect of legal hassles arising out of inability to pay back loans does not present a very pretty picture and is totally avoidable if people make good their loans promptly.
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