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The cash loan process

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The most common payday loans involve lending short-term unsecured loans to a borrower who has to repay the loan in full in the next payday. The lenders verify the credit records, employment and income of the borrower although the criteria vary from one lender to the other.

The borrower of payday cash loans write a cheque to the lending company covering the borrowed amount plus the interest. When the maturity date for the loan is reached, the borrower should go to the lending company to repay the loan in person. Failure to do this gives the lender the freedom to redeem the check. If the borrower’s account lacks enough money for repayment of the loan, the borrower is charged a bounced check fee by the bank in addition to the loan cost, interest and any other additional charged resulting from failure to repay the loan.

In the recent past, online payday loans have become common and borrowers only need to apply for the loans online and provide all the required documents by fax or email. The lending company then deposits the borrowed amount the borrower’s account. The loan repayments are electronically withdrawn from borrower’s account when due.

The cost of payday cash loans

Payday loans are generally very expensive but various jurisdictions limit the Annual Percentage Rate (APR) to shield customers from excessive interest rates charged by the lenders. In some countries, payday loans have been completely outlawed while in other countries the lenders are faced with various restrictions. These loans however impose high risks on the lenders because not all the borrowers repay.

Alternatives to payday cash loans

Some of the alternatives to payday loans include:

  • Establishment of an emergency cash fund account (although this is difficult for many people)
  • Get an unsecured loan (or a signature loan) from credit unions or bank
  • Keep credit so as to be able to borrow from mainstream lenders at moderated rates
  • Negotiate with the lender for a flexible repayment plan
  • Try peer-to-peer lending
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