Payday Loans

Payday loans are small loans taken out at an extremely high interest rate, intended to tide borrowers over a crisis. The loan is pinned to his next payday cheque and is usually arranged over a period of about two weeks.
The lenders are typically small lending shops, or internet stores that offer this service. These loans are proposed for the kind of life crisis that requires a small amount of cash immediately, without any delay. This should never be an attempted way out for paying debts in arrears, but rather for the unexpected emergency, such as an accident or an urgent trip to visit a dying relative.
This is the way it is normally arranged between lender and borrower:
The borrower has to go into the store and fill in and sign the agreement forms. He must provide proof of income and is then required to make out a post dated cheque in favour of the lender. If the loan is not repaid by the borrower on or before his next pay day, the lender is entitled to cash the cheque. Should the cheque bounce and the borrower be unable to repay the loan, he will be offered an extended time in which to repay the loan, but he will incur all the penalties of a bounced cheque.
Online lenders give the borrower the advantage of being able to shop around' for the best terms and conditions. [It is not always possible to do this by walking or driving around from shop to shop.] There are usually forms for the borrower to download and to fill in, giving personal information, social security numbers, and verification of employment, as well as banking details.
The signed paperwork is faxed back to the lender and a direct deposit is made into the borrower's bank account.
In the USA at least 13 states, which have usury laws, have made payday loans illegal. The rest have got around these laws, often by forming relationships with certain banks that do not have a usury limit. In those US states where payday loans are legal, lenders typically charge 15% -30% of the borrowed amount for the approximately two-week period until the next payday.
In parts of Australia the maximum interest allowed is 48% including all fees.
In most of Canada the maximum is 23%. There are also limitations on the amount the client is allowed to borrow. Not more than an amount equalling 50% of his next pay cheque is allowed.
In the UK a payday loan typically costs the borrower 20% interest for two weeks. However, as there is no law against rolling over the debt, the borrower could end up paying more than 120% if he is unable to pay for six months.
Payday loans are a very controversial issue and many if not most consider this form of lending to be exploitative of the most financially needy population sectors. However, there is no doubt that in absolute crisis, it may prove, in the short term, to be the only way out for some people.