Payday loans are short-term cash loans or advance loans. The average loan term is about two weeks. These loans are given to the borrower on the basis of his personal cheque held for future deposit or on electronic access to his bank account. Borrowers write a personal cheque for the amount borrowed and the finance charge and receive cash in return. In some cases, borrowers sign to get electronic access to their bank accounts to receive and repay payday loans.
Lenders hold the cheque until the next payday when loans and the finance charges must be repaid in lump sum. To repay a loan, borrowers can redeem the cheque by paying the loan with cash, allow the cheque to be deposited in the bank, or just pay the finance charge to roll the loan over for another pay period.
Payday loans are provided by payday loan stores, cheque cashers, and pawn shops. Some rent-to-own companies also make payday loans. Loans are also marketed via toll-free telephone numbers and over the Internet.
Are young consumers the target of payday loans?
Today, payday loans are being marketed through social networking sites, and are being targeted at young customers who are in need of money. Borrowers who are enticed may be unaware of the true consequences of payday loans, particularly of the high rate of interest which may be applicable.
Young consumers are getting into debt by taking out high-interest payday loans. Youngsters with low income mainly become the victims of payday lenders. When they need money and are not able to turn to credit, they often turn to payday loan providers, despite of high interest rate.
Payday loans trap consumers in a repetitive borrowing cycle due to the extremely high cost of borrowing, short repayment term, and the consequences of failing to make good on the cheque used to secure the loan. Many people find themselves deep in debt due to the high Annual Percentage Rate (APR) attached to payday loans, whereas they could get a personal loan from a large retail bank at a much more reasonable interest rate.
Hence, it is safe to say that payday loans may be easy to acquire. However, it is better to steer clear of them as they may harm an individual’s finances in the long term.