There are those of us who earn well and those of us who live from day to day. Given the standard of living today, many people can’t meet their monthly needs with their earnings. Either the payment arrives late or bills arrive early. In any case, a person has to live his day.
Borrowing a huge amount of money is not possible for everyone especially those at the lower end of the earning cycle. These people usually resort to what is called Payday loans.
What are they?
Payday loans are a kind of unsecured short-term bank loans. They are also commonly known as payroll loans, salary loans, cash advances, payday advances or short-term loans. These loans can only be taken against employment records. Countries differ in their laws regarding these loans. Usually, governments place a cap over the interest charged on them.
How are the loans secured?
Taking salary loans requires the lender to give a certain amount of unsecured loan to the borrower, for a short period of time. This loan is taken back on the next pay day of the borrower. The borrower needs to provide some proof of employment to the lender.
The borrower then writes a check to the lender that is post-dated with the total amount along with the fees. This is done for security reasons. The borrower must return the amount in cash on the maturity date otherwise the lender can redeem the check. In case of failure to pay, additional fees and interest rates are applied until the loan is paid.
Reasons people take loans
Usually, salary loans are taken for fulfilling everyday expenses. Rarely ever are they used for emergencies or other situations. Sometimes the salary is delayed or sometimes the month’s expenses fall short of the income. In situations like these, people are forced to take these loans. So the sector usually taking short term loans is the poorer class in the society.
Even though Payday loans put huge stress on the borrower since he has to pay more than what he took, people resort to them to get by with their monthly expenses and in this sense, they are a huge help to those in need.