Introduction to Payday Loan
A Payday loan is also known as payday advance or salary loan. It is a small, short-term unsecured loan where repayment of loan is linked to a borrower’s payday i.e., the day they receive their pay that is why it is known as Payday loan.
Payday loan is granted to a borrower who is in employ mentor having employment records or previous payroll slips. In some situation, it could happen that a person is temporarily out of cash but in need of money to meet some urgent requirement, payday loans serve as the best option to meet out the expenses.
Payday loans have become more popular both due to the high demand and also due to the digital marketing and advertising companies in media and on internet. These loans are also known under the names of cash advance loans and instant loans. They are intended as instant financial help to the people in the situation of emergency and are available to all borrowers.Payday-Loans-Need-Of-The-Hour
The concept is gaining much importance in the countries like America where about 70% of families live from paycheck to paycheck. A lot of people get such small salary that it becomes difficult to manage any unforeseeable expense in between. This is quite understandable that friends can always help; however, more and more people tend to choose payday loans against all the other options.
“It appears that these products may work for some consumers for whom an expense needs to be overdue for a short period of time. The key for the product to work as structured, however, is a sufficient cash flow which can be used to retire the debt within a short period of time.”
-Report of CFPB 2013.
In accordance with the Pew Charitable Trusts 2015 report based on a survey on payday loans in America, following features have been listed out:
- Payday loans are small cash loans offered for a short term with APR 300-500% on average that are supposed to be repaid in two-week period.
- The average number of people in America that use payday loans annually is about 12 million.
- 69% used payday loans to cover recurring expenses.
- 16% use such loans for cases of an unexpected expense.
- The survey showed that 75% of borrowers feel that this credit sector is insufficiently regulated.
- General public supports CFPB efforts for better regulation of the industry.
- Certain percent of the respondents are inclined to accept the alternative small cash opportunity provided by banks despite the fact that they are likely to be more expensive than usual credit card offers and similar products.