Time is like a pendulum - there are good and bad times. We live in an expensive world. Everybody worth his salt is running after to earn more and more. But, sometimes it becomes necessary to lend the money to satisfy the needs. There are bad times when, not even a single penny is left to spend but the need is such that it has to be satisfied. Hence, this situation generally let a person to lend some amount. The concept of loans has emerged seeing the difficult times of a person.
These loans are unsecured in nature, as the lender is not required to pay any security against the loan amount. Personal loans that are available in the market are student loans, bad credit loans, home loans, auto loans and debt consolidation loans.
Sometimes, quick payday loans also known as cash advances. Commonly known as payday loan, can be referred to as the cash provided against a prearranged credit lime credit card. It is often regulated at the state level. Though United Sates congress passed a law in October 2006 to provide loans to military personnel at 36 percent on annual percent rates (APR).
Some banking regulators are seeking to prohibit the loans for not just the military personnel, but for all the lenders due to the unnecessary financial drain. These are considered to be the high costs and financial drains as the primary lenders for these loans comprises if middle class and lower middle class families.
Lenders believe that the middle class families are only left with this option during their bad credits, catering to their urgent needs, and cannot take other loans like bank loans, credit card loans and so on. Many critics counter this point by emphasizing over the cycle of debt. They say that people get trapped in worse situation, the debt cycle by raising loan from banks.
High interest rates don't let them pay even the interest amount, and the real amount lies as bad credits over them.
The fast growing loan industry proves the faster profit models. The lenders earn a rich amount of interest, which serves as profits for further investment to them. The repeat borrowing of money by those who are not able to pay the previous amount tends to add on to the profits of the lenders with a feature of increased interest rates.
Talking about the process of payday loans, it is quiet simple and hustle free. One can visit the payday loan-lending store to secure a small cash loan with the payment in full due at the borrower's next paycheck. The term for next paycheck is near about of 2 weeks time.
On the date of maturity, the borrower has to pay the amount borrowed along with the interest rates. In case, he is not able to pay in person the electronic payments and traditional payments (by cheque) can also be processed.
The store can access the accounts of the lender to debit the amount lended. In case the account is in short of the amount to cover the cheque, the borrower faces the added fee of cheque bounce along with the actual loan. In case of non-repayment of loan extra surcharges along with increased rates are added to the account.
Usually a borrower is not able to repay the whole amount in first pay check which tends him to raise another loan and hence, witnessing him to be trapped in a vicious circle of debt.
Though the payday loan industry is on boom today, however it has been facing various criticisms and controversies. It is blamed to be the profit earner by exploiting the financial hardships of people. It tends to adopt aggressive collection practices of amounts in case of non-repayment of loans. The inflated loan costs by the industry and over stating the industry's risk by lenders are also included in the controversies and criticisms list.