What's a Payday Loan?

Written By Devi Kristanti on Friday, October 24, 2014 | 2:49 PM

These days there seem to be more people than not that are facing difficult financial situations. The economy keeps dipping, companies are laying off employees at alarming rates and others aren't hiring even the most qualified of applicants. This means that a lot of people are encountering times when they have urgent financial obligations but not the funding to fulfill them. When this happens, it can seem like a hopeless situation. With payday loans, however, you have the opportunity to get through these difficult patches and gain better control of your finances.

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What are Payday Loans?

Payday loans are short term, small sum loans provided by specific lenders that are meant to function as an advance on the borrower's next paycheck. This means that you are able to borrow a percentage of your average income for the period of time between applying for the loan and the next paycheck you receive. The lender charges fees and interest in exchange for the convenience of simple, fast access to money.

Why Were they Created?

Most loans are difficult to get, and require extensive applications, interviews and ideal credit standing to be eligible. This makes them inaccessible for many people, especially those people that are in bad financial shape and need money quickly. It was with these people in mind that payday loans were created. The originators of the paycheck cash advance believed that all people should have a resource for borrowing much-needed money regardless of past or current financial problems. These loans were created so that employed, responsible people that needed money quickly but didn't have access to other forms of financial assistance would be able to borrow a small amount of money for a short period of time. The creators felt that people could be trusted and, if given the opportunity to borrow money against their next paycheck, that they would handle the use and repayment of those loans well.

Who Can Use Them?

Nearly anyone over the age of 18 with a verifiable job and valid checking account is eligible for a payday loan. These loans are intended for adults that are able to handle the responsibility of repaying the total loan amount, plus applicable fees and interest, within the short loan period. When you go in to apply for a payday loan you only need to bring a valid picture ID such as a driver's license or passport, your most recent paycheck to verify how much you make and how often you get paid, and the information for your active checking account. This checking account will be used to transfer the loan money if you do not get a paper check, and will be debited for the total amount due at the end of your loan period.

How are they Different?

Payday loans are different from traditional bank or financial institution loans in many ways. First, these loans require no credit check, collateral or financial record investigation during the application process. This means that they are much easier to obtain. Payday loans are also completely confidential. Unlike with bank loans that must be explained, what you intend to do with the money from your payday loan is totally private. You can use the money for anything that you want and as long as you repay them, they will not be on your financial records. These loans are emergency lifelines to be used when there are no other alternatives. Though they can be expensive, they can also be invaluable when you really need money.

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