Introduction

A payday loan is a very popular short term loan. This kind of loan is termed as unsecured. It does not really matter whether loans are linked to a payday of the borrower. The loans are defined in various terms and sometimes as cash advances. This kind of loan can be received in cash, but also via credit cards. In case of credit cards it is required to arrange beforehand. A payday loan is a very popular and innovative kind of loan process where the borrower must have previous employment and payroll records. The legal terms and conditions are different as per state and country wise. The interest rates are also regulated by the authority so that the lenders do not claim excessive rates on payday loan. They have put a limit on the interest rate of payday loan.

Payday lenders have to go by the jurisdictions and except the interest rate cap there are no such restrictions on lenders. The calculations of interest rates on payday loans are calculated in different ways. The annual percentage of interest varies with each other depending on the method the lender has chosen on the basis of lending and borrowing capability of the consumer. The method of interest calculation is so very important for consumers because it can affect the rate of interests dramatically. The lender has to take reasonable amount of risks in case of lending payday loans. The lenders have a default annual rate of interests of 10% to 20%.

Loan Process

The payday loan process is very consumer friendly. The short term payday loans are taken from lenders and the borrowers have to return the amount on the next payment date. Generally the lenders should check credit database and verify the documents provided by the borrowers before they approve the payday loans but that is not the case everywhere. Generally the lenders made the borrowers to give their consent on the customized underwriting of individual lenders. They do not verify income source or anything. The traditional model of lending payday loan is far secured than other methods. In the traditional retail process the borrower visit a nearby payday loan store and receive a cash loan.

The loan amount is always small. The borrower then needs to submit a post dated check to the lender and the borrower needs to repay the amount in full in his or her next payday. The consumer should reach the payday loan store in person and by any reason the person does not arrive on the date, then the post dated check has to be redeemed. In case the check is bounced, then the bank will slap a fine to the borrower along with the loan amount. The more interestingly in such scenario the loan repayment amount may increase due to change of the rate of interest at that point of time.