The popularity of payday loans

Borrowing and lending activity is seen the world over. There are various avenues available for borrowers to take loans against various securities and banks play a big role in making this happen.

Getting a loan however small involves a lot of formalities and documentation. There are lenders who can harass the borrower no end and similarly the lender may not keep to deadlines. But there is a solution to this especially for short term and small loans and the borrower who is looking for urgent funds need look no further. Here is a safe and trusted method that is known as payday loans.
The amount of loan that is granted depends on the salary earned by the borrower and the loan is so called as it is secured against the borrowers next month’s pay check. Such loans come in handy for unforeseen eventualities such as illness, car repairs etc which cannot wait till payday.
As security the borrower issues a post-dated check to the lender and this date is normally the date on which the borrower gets his next month’s pay check. This posted dated check also includes the amount of interest that will accrue. The lender does not use this check but waits for the borrower to personally come and settle his dues on the day agreed upon.

Many a time the borrower fails to appear and in that case the lender will decide on depositing the post dated check given by the borrower in his account. Some borrowers do not have enough funds in the bank and that is the time the lender will have to deal with a bounced check. There is therefore heavy risk for the lender in such transactions. But most borrowers however, stick to their commitment.
The interest charged is normally monitored by the powers that be as since the money is required urgently the lender could take advantage of the situation and charge exorbitant interest rates but being a short-term loan the interest is high compared to normal rates.
Those who opt for this come under the low-income group and the heavy interest that is charged is seen as exploitation of the poor. But the borrower has no other option as in other modes of borrowing the lenders want other forms of security which the borrower may not be in a position to provide. There is also the possibility of inadvertent delays, which the lender can ill afford.
This transaction is also possible online where the lender is expected to fill up a form giving relevant details such as name, residential address, name of the organization that the borrower works for, salary drawn and proof that he is still in service and most importantly the amount the borrower wishes to borrow. It is no guarantee that the lender will grant the full amount asked for. Once the necessary formalities are completed the lender is satisfied he will pass the loan once borrower hands over the post-dated check.
The payday loans system is foolproof as both the lender and the borrower’s commitments are well secured.and,  therefore, this system is quite popular.