Should You Apply For a Payday Loan?
Payday loans, or installment loans as they are also called, are short term loans the dollar amount of which is comparatively low. The reason that these unsecured loans are referred to as payday loans is that the term of the loan typically lasts for the remaining time period before the next pay check of the borrower is automatically deposited into his bank account. Once this paycheck has been electronically deposited, the lender will immediately withdraw a previously agreed upon payment amount from the checking account of the borrower. The amount of this payment may be for a small portion of the original loan, meaning that the remainder of the loan must be paid on the following payday. However, a borrower may also agree to have the entire amount of the loan withdrawn as soon as his paycheck is deposited. Whether the borrower is paying back a fraction or the entirety of the original loan, he will also be responsible for paying interest, and sometimes, additional fees.
The interest rates on installment loans are very high, regardless of whether the payday loans are paid back in full right away. Payday loan lenders set online payday loans at high annual interest rates because the borrowing population for payday loans has been identified as a significant credit risk. Each state sets its own regulations regarding payday loan interest rates and maximum borrowing amounts. For example, the maximum amount permitted by the State of Illinois for installment loans is the lesser of $1,000.00 or 25 percent of the monthly gross income of the borrower. However, other states vary as to their requirements regarding these aspects of installment loans.
Installment loans are meant to be a short term fix for people who run out of cash prior to payday and have no other means of making ends meet. Because companies offering payday loans collect the banking information of the borrower prior to dispersing the loan, it is nearly impossible for a borrower to miss a payment. As well, bouncing checks written to lenders that provide installment loans will result in a report on the delinquent borrower being filed with ChexSystems. Such a report can make it nearly impossible to open a new checking or savings account at any reputable financial institution. Thus, a person should only consider applying for installment loans if he is in dire financial straits and also is 100 percent certain that he will be able to pay the loan back on schedule.
Though lenders are not lawfully permitted to initiate criminal proceedings against delinquent borrowers, they are known for being extremely tenacious in their collection tactics. Installment loans may be unsecured loans, but they are not loans you can walk away from easily. Therefore, one should think very carefully before applying for installment loans. Though is can be argued that providers of installment loans offer a valuable service to people in serious financial need, taking out installment loans demands a great deal of responsibility from the borrower. Applying for installment loans is not a choice to be made lightly. More research here: www.shorttermloans.com