By far the most popular form of short-term borrowing, payday loans offer modest amounts of money over a fairly brief term to help borrowers in a financial pinch. A payday loan has distinct characteristics that separate it from other lending products, such as title loans, cash advances, and personal loans. Generally, a payday advance loan is accessible to almost all borrowers with steady incomes and employment. Additionally, unlike a title loan or secured loan, a pay day loan requires no collateral because your paycheck eliminates that need. Read on to find out how you can turn your check into cash when you need it with pay day loans.
Consider these facts about payday loan borrowers:
- Most cash advance borrowers earn $25,000-$50,000 annually
- 68 percent of customers are under age 45
- 42 percent of pay day borrowers own their own homes
- 94 percent of borrowers have at least a high school diploma, and 56 percent have some college or an advanced degree
- 100 percent have consistent incomes and active bank accounts, both of which are prerequisites to obtaining a payday advance
Debunking the Myths about Payday Products
Due to the actions of a small minority of unscrupulous lenders, payday loan companies have not received a fair shake in the media. Payday loan proprietors are repeatedly depicted as predators who exploit the poor, the elderly, and minority groups who are typically already in compromised financial situations. In reality, the notion that pay day loan companies target the downtrodden is patently false. The vast majority of those who seek out payday loans online are typical middle-class, hard-working Americans who may not have the requisite savings to cover unexpected financial emergencies.
History of the Payday Loan
The modern form of the payday advance reflects a significant evolution over the past few decades. Until the advent of the Internet, payday loans were offered only by brick-and-mortar proprietors. The original iteration of the payday loan required borrowers to visit a payday lender in person and provide a postdated check for the amount the customer wished to borrow plus interest and fees. The lender would then issue the loan and hold on to the check until the payment date arrived, at which point the lender cashed the check. Typically, the lender would wait two weeks before cashing the postdated check.
When the Internet became a staple in American homes, however, the pay day loan industry underwent a radical transformation. In the late nineties, the industry saw a drastic shift from local-market-based proprietors to online lenders. Online payday loan sites proliferated, and the industry grew exponentially as the Internet readily lent itself to the accessibility and convenience of the payday advance. The online process streamlined the application process and eliminate virtually all need for paperwork. Rather than exchanging checks as in the past, lenders could now directly deposit funds into bank accounts electronically and withdraw repayment in the same manner. With more lenders than ever in the industry, payday loans quickly became more affordable and more mainstream, appealing to a wider cross section of borrowers.
Regulating the Payday Loan Industry
The regulation of payday advance products occurs primarily at the state level, which gives rise to substantial disparity among states as to what interest rates, fees, products, etc. are permitted by law. At present, 34 states have regulations governing payday loans. Typically, these regulations involve caps on pay day loan amounts, restrictions on the length of the loan’s terms, and limits on who can take out cash advances and how often. For the most part, payday advances are regulated by usury laws, which are determined on a state-by-state basis. In today’s parlance, usury is a term that describes the practice of lending money at unreasonably high interest rates. Usury laws typically set the maximum rate at which financial institutions can loan money, and payday lenders are subject to these laws where they exist.
Some regulations at the federal level also impact payday lending in several ways. For one, cash advance lenders cannot loan to active members of the military. Secondly, all payday lenders must adhere to the federal Truth in Lending Act (TILA), which requires lenders to disclose the cost and rates of a pay day loan clearly and completely in the loan agreement as well as on any advertisements promoting specific cash advances.
Consolidating Pay Day Loans
Another option almost all payday lenders offer to their borrowers is a consolidation loan. If you have multiple outstanding payday loans, your lender may allow you to roll them into a single loan with one due date. This option may also assume the form of a rolled-over payday advance, which means if you cannot repay the money on the original due date, you might be able to roll the loan over for additional time. In so doing, you essentially take out another payday loan, but the two remain consolidated in one product.
Obtaining a Payday Loan
Unlike other short-term borrowing options, cash advances are available only through lenders dedicated exclusively to payday-related products. You cannot obtain a traditional payday loan from a bank or credit union because those providers require a credit check and/or collateral in order to borrow even small sums of money. To get a paycheck loan, you will need to find a lender and request an offer. The lender will then tell you how much you qualify to borrow, for how long, and how much the loan will cost. You can request this information for free from one of the lenders in our network at any time through our site.