Payday loans are a type of short-term loan that provide high-interest credit based on your income. They are also known as cash advance loans or check advance loans. Payday loans are advertised as a way to provide emergency relief, but they are often used to cover routine living expenses. Borrowers typically receive 8 to 13 payday loans per year from a single store, and 1% of all payday loans go to one-time emergency borrowers who repay their loan within two weeks.
Payday lenders are willing to lend to virtually anyone with a checking account and some kind of regular income. Regulations on these loans vary by state, with 16 states plus the District of Columbia prohibiting payday loans of any kind. Depending on your state's law, payday loans may be available through payday lenders in stores or online. Payday lenders take advantage of people in desperate economic straits, such as low-income minority families, members of the military, and anyone else with limited credit options.
Interest rates can be close to 35%, which is much better than the 39.1% rate charged by payday lenders. Although payday lenders often operate out of stores, a new class of loan operator uses the Internet. Payday loans only require proof of identification, income, and a bank account and are often given to people who have bad or non-existent credit. If you are considering a payday loan, you may first want to look for safer personal loan alternatives. Payday loan providers are usually small credit merchants with physical stores that allow approval and application for credit on site.
Some states require payday lenders to be at least a quarter of a mile from each other and 500 feet from homes, similar to restrictions on sexually oriented businesses. To repay the loan, the borrower issues a postdated check for the amount that will be deposited after their next payday or gives the lender their bank information to electronically charge the payment.