A payday loan is known as such because it is usually expected that any loan taken is repaid on the next payday that comes up after the loan is taken. These loans are often limited to the capacity of the borrower to repay the entire amount depending on the salary they can expect on that payday.
Payday loans are short term and unsecured loans and are considered as cash advances against future earnings. Borrowers are required to have a record of continuing employment and amounts are restricted to the pay level of the borrower. Interest rates are high, but as the amounts are small the actual the effect of this high interest on loan amounts is small. There can be other charges that can add to the cost of these payday loans.
Borrowers require providing documentation that confirms their employment in the form of pay stubs and bank statements. Credit checks are not usually undertaken, nor are any other income criteria or assets required to be declared. Loans are approved within 24 hours, and the borrowed amount will be deposited in the bank account of the borrower immediately. The borrower is also required to deposit a check for the entire amount plus interest and charges, along with the application or as soon as approval is granted.
The check so deposited is cashed by the lender if the borrower does not visit them on the designated date and repay the loan. Many lenders offer this facility online, and payments are made electronically to bank accounts. The same process is used for the repayment of the loan and requires the borrower to give authorization for such withdrawal along with the application for borrowing the amount.
These loans are useful to tide over temporary financial difficulties and must be used judiciously. Regularly using them to meet living expenses is not recommended, and people in these situations must look at other means to improve their debt.