Business & Finance Loans

The Features of Payday Loan

The payday loans in Oklahoma City are also called salary loan, payroll loan or short term loan is a kind of loan in which loan is granted where the repayment of the loan is no where related to the borrower's pay. The granting of the loan takes place based on the basis of the person's employment records and previous pays. It has been made valid in different countries with different conditions and requirement, with the conditions been different in the different states of USA itself. The jurisdiction has started the new concept of APR (Annual Pay Percentage) regarding this payday loan, where the lender can charge extra money according to his terms and convenience. Previously, it was seen that various risks governed it, now no sign of long term risks are noticed.

The procedure is very simple. A borrower first goes to his nearby lender to get a loan he desires, this loan comes with a specific amount of interest, which will be taken from the borrower's next paycheck. The borrower writes a post dated check to the lender, such that he comes back to repay the loan in person on the arrival of the next paycheck. If the person does not come back to the lender, the money is redeemed, if the check bounces back then the time when the money is redeemed there is extra fees which is charged over it. With the advancement of the internet these loans have become handier, where the loan related information is sent using fax while on the other hand the money is deposited on the borrower's account. After the completion of time period the money along with the fees is redeemed from the borrower's account.

According to a study by The Pew Charitable Trusts, "Most payday loan borrowers are white, female, and are 25 to 44 years old. However, after controlling for other characteristics, there are five groups that have higher odds of having used a payday loan: those without a four-year college degree; home renters; African Americans; those earning below $40,000 annually; and those who are separated or divorced." Most borrowers use loans to cover ordinary living expenses over the course of months, not unexpected emergencies over the course of weeks. The average borrower is indebted about five months of the year.

Research for the Illinois Department of Financial and Professional Regulation found that a majority of Illinois loan borrowers earn $30,000 or less per year. Texas' Office of the Consumer Credit Commissioner collected data on 2012 the usage of payday loan usage. It discovered that refinances for $2.01 billion in loan volume, compared with $1.08 billion in primary loan quantity. The report has not included the information about annual gratitude. A letter to the editor from the industry expert argued that other studies have found that consumers fare better when payday loans are available to them. Pew's reports have focused on how payday lending can be enhanced. However, it has not examined if consumers fare better with or without access to higher interest loans. Pew's demographic study was founded on a random-digit-dialing (RDD) survey of 33,576 individuals, along with 1,855 payday loan borrowers.

Though a quick means of providing money, yet this comes with a few problems:

1. Wrong means of collecting money:
The process in which it is conducted is not very borrower friendly. The time within, which if the borrower does not pay back the money, aggressive steps are taken to get the money back. Extra charge of fees is a common practice.

2. Wrong structure of the payday loans:
The payday loans argue on the fact that money lent for small amounts and for small time intervals does not bring in profit. Example, a $100 one-week loan, at a 20% APR (compounded weekly) would generate only 38 cents as interest that would not match with the loan processing charges. Studies show that in general, payday loan prices moved upward, and that such moves were "consistent with implicit collusion facilitated by price focal points".

3. The process of advertising about the payday loans are also not very suitable.

4. Interest rates are very high even on small amounts making it a difficult thought for a loan to be taken.

Though there are problems yet the payday loan is a very helpful and constructive thought of getting money quickly and even an easier process to pay back the loan on time.

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