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Payday Loans



A payday loan is a minimum amount of credit that is borrowed from lending institutions to meet the debtor’s needs for the duration that the agreement lasts. It is usually taken about a fortnight before they receive their salaries. The only security to this borrowed sum is the salary of the borrower, which must be counterchecked against the date that the debt is affixed.


A payday loan may have more than two parties to the agreement. Apart from the original signers, who include the lender and the borrower, the bank may enter as the third party. This is because the check must pass through the accounts during the payment process. Thus, in case any side defaults on the agreement, the bank has the authority to reward the defaulted party by giving permission to the accounts of the financial transgressor. This often happens when the borrower usually cannot meet the payment on the set date.


This form of short term credit usually attracts a high rate of interest. This is compounded by the fact that only a fortnight separates between the date of repayment and that of application for the sum. In most countries, there are no flat rates and the percentage fluctuates at about a quarter of the whole amount. Thus if this is rendered continuous throughout the year, the lender will have accumulated over 300% worth of interest from a single individual. The only advantage here is that payment does not extend into an installment basis and thus does not promote impulse buying. A person ensures that once they receive their wages they repay the whole sum plus the interest garnered.


Essentially, a payday loan applies to cash payment either by hand or through banks. However, this definition can expand to embrace electronic money transfer whereby one buys goods in advance in order to pay for them at a future date. In this way, it is easy to transfer cash balances to a merchant account where the credit will be assimilated and repaid when the deal matures at the end of the month.


In case the borrower transgresses a payday loan, they have the freedom to seek for an extension of a few days within which to pay the remaining sum. Many authorities stipulate that no further charges should be enforced during this period and only the predetermined amount should be remitted. In case a person fails to meet their part of the bargain, and seeks to escape payment, the lender has the authority to cash in the check for the redemption of the money from the bank of the creditor. This occurs when there are sufficient funds in their accounts.


A payday loan is essentially a financial commitment by an individual who has no starting capital for a given month. Thus, they solicit for an amount to sustain them in the duration before they receive their salaries. This can be a good method for those who borrow minimum amounts and have a job that can systematically settle the balance in time.

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