A Guide to Payday Loans

Friday, March 15, 2013

Payday loans are a special type of short-term loan that can be quite useful if used properly; these unsecured loans are designed to give borrowers enough money to make it to their next paycheque without trouble, after which the loan is repaid.

While payday loans are legitimate debts that need to be treated as such, they are generally more informal than many loans because of the ease with which individuals can apply for them as well as the shorter term of the loan.

Most payday loans are designed to be repaid within two weeks of the loan being issued, though this date is often negotiable depending upon when the borrower's next payday is.


Because they are designed to be a short-term solution for individuals who need just a little bit more money to last them until they are paid next, the borrowing procedures for payday loans tends to be a bit more relaxed than with larger loans.

Most payday loans are issued by smaller finance companies or specialty lenders, and use a postdated cheque as the only form of collateral to secure the loan. A due date is set for the loan once it is issued, and the borrower has until that date to pay the lender the amount that has been borrowed plus a service charge or else the lender will process the cheque to receive their payment.

Loan Requirements

Since payday loans are small and extremely short-term in nature, the requirements for receiving these loans tends to be different than standard loans. Most loan providers who deal in this type of lending do not perform credit checks before issuing the loan; instead, they simply require that the borrower simply be able to prove their identity and financial stability in order to receive the loan.

Common requirements for these loans include government-issued photo identification, recent bank statements, recent paycheque stubs, and occasionally utility bills or other mail so as to prove residence within the lender's service area.

Repaying the Loan

Once payday loans are issued, there is a very limited amount of time before the loan becomes due. Instead of charging interest, lenders who issue these loans simply charge a service fee in addition to the base loan amount. The cheque that is used as security for the loan is made out for the loan amount plus the service fee, and is postdated after the due date of the loan.

When the loan becomes due, the borrower may pick up their cheque from the lender by paying the due amount; they may also elect to have the loan provider simply deposit the cheque and let it be processed by their bank.

For those who choose this option it is important that they have the money in their account to cover the cheque, as the lender will charge additional fees for returned cheques.

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