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Payday Cash Advance Loans-What Consumers Must Know

A payday loan or payday cash advance is a short term, unsecured loan. In many situations, this type of loan though isn’t associated with a person’s paycheck and the lender doesn’t link the loan to the borrower’s payday. Lenders use the person’s past payroll and employment records to determine if the funds will be advanced which is where the loan got its name. Most countries now regulate payday loans and, in the United States, most states have laws, rules and regulations concerning loans of this type. These laws and regulations and laws are designed to prevent excessive and unreasonable interest rates. Lenders do charge more for advance loans as the lender takes on more risk when providing funds in this manner. The estimated default rate on payday cash advance loans runs at 6 percent, according to an article entitled “On Poverty, Interest Rates and Payday Loans” published in theatlantic.com. Another study, entitled “The Profitability of Payday Loans”, estimates payday lenders lose approximately one-quarter of their annual revenue to defaults. Some lenders do differentiate between cash advance and payday loans. For those lenders which do, a cash advance is a loan which must by paid within a specified time frame, typically one month. A payday loan at these lenders must be repaid with the next paycheck. Most lenders now use these terms interchangeably though and the Federal Trade Commission considers them to be one and the same. How Does the Loan Process Work for a Cash Advance or Payday Loan? When an applicant requests funds from a payday lender, the applicant must typically provide some form of employment verification, such as a paycheck stub or a letter from the lender verifying employment. Some lenders accept bank statements as a form of employment verification. Each company determines what must be used to prove employment so consumers need to ask before applying to ensure the necessary documents can be produced. The borrower may either visit a storefront location or turn to payday advance loans online. During the application process, the lender provides information about the terms and conditions of the loan and the… Read More