Surprise Expenses? You’ve Got Options

Every day, thousands of Americans find themselves facing financial uncertainty. As appliances break, pipes leak, and cars quit without notice, many find themselves scraping to pay for groceries and pay rent, bills, and loans. There’s an option, though, that is often forgotten: payday loans.

What Are Payday Loans?

Payday loans are unsecured, short term loans for about two weeks or until the borrower’s next pay day for modest amounts of money. Usually, they’re for only a few hundred dollars, but they can be ideal for the payment of bills, car repairs, medical bills, or other unexpected expenses.

What Is The Process for Getting Payday Loans?

Usually, a lender requires some verification of employment or income, though the requirements vary from company to company. Many companies do not verify income or run credit checks, so bad credit does not necessarily prevent borrowers from obtaining short term loans. Borrowers visit a payday lending store and secure small cash loans, agreeing to make payment on their next paydays. The borrower writes a check to the lender in the full amount, plus fees, and postdates it for a particular date. On that day, the borrower is expected to return to the store to repay loans in person. In the event that the borrower does not return, the lender can redeem the check.

More recently, online payday loans have become popular. In this case, borrowers fill out an online application, or sometimes fax their information. The loan is then directly deposited to the borrower’s account. The loan repayment or finance charge is withdrawn automatically on the borrower’s next payday.

Are There Rules, Policies or Regulations About Payday Checks?

There are a few caveats and rules of which borrowers should be aware. If a check written to a payday loan establishment bounces, it can be noted on your ChexSystems file. This report is used by financial institutions to identify which applicants have a history of account mishandling. Payday lenders are subject to usury limits and can only charge a particular amount, as predetermined by the states in which they operate. One organization in Illinois was fined $234,000 in 2008 for exceeding the $15.50 per $100 limit on charges for payday loans. Illinois also has a regulation allowing residents to have payday loans for up to 45 consecutive days.

Payday loans are considered by borrowers to offer essential, unique services. Most feel that the charges are fair, given the service provided. One staff report released by the Federal Reserve Bank of New York concluded that payday loans may improve household welfare, and another study found that in natural disaster areas where payday loans were available, consumers fared better than those in areas where payday loans were unavailable. Fewer foreclosures were recorded, and fewer people were treated for drug and alcohol addiction. Payday loans are fairly easy to procure and, as long as they are used responsibly, can be a major help to those needing help making unexpected payments.