Installment Payday Loans

Installment Payday Loans

Imagine a situation where, in the middle of the month there suddenly arises a need to buy something may be for the house or for your children. This is an unforeseen expenditure that you just cannot avoid. What would you do?  Borrow from a friend or neighbor?  Well, this can be done once or twice but these people may not be accommodative all the time and even if they are, you would not want to impose on them.  After all, it is said – “Never borrow, never lend, if you want to keep a friend.” What do you do then, how can you arrange for the money?  Installment payday loans provide the solution.

What Are Installment Payday Loans?

When a person with a regular salary borrows a loan to be repaid on the day he gets his salary i.e. on payday, it is called a payday loan.  When the borrower opts for paying loans in installments on successive paydays, they are called Installment Payday Loans.

Features of Installment Payday Loans:

  • These loans are granted only to people with a regular salary.
  • The borrower should have a savings bank account.
  • The rate of interest charged is generally very high.
  • These loans are available within a very short period of time, and the borrower gets the money usually in one working day.

These loans are very popular in the U.S., though not all states allow such loans.  Many states have either banned these loans or kept the ceiling for interest rates very low, making it unfeasible for the lender to issue such loans.  Lending institutions in states where installment payday loans were illegal used to get around the law by tying up with banks of other states where such loans were legal.  This loophole was however taken care of.

There Are Many Arguments Against Installment Payday Loans:

Exploitation of the Salaried Poor:

  It has been argued that the lenders of such loans take undue advantage of the helplessness of the low income borrowers.  These people need the money and often do not realize that they will be paying exorbitant rates of interest.

Increased Burden On the Low Income Groups:

Though advocates of installment payday loans argue that they help by providing money to people who no other lender would lend to, borrowing these loans result in even less money for the borrowers as they pay very high interest on these loans.

High Processing Charges: 

When a normal loan is applied for from a bank, a thorough check has to be made regarding the finances of the borrower, his credit history and so on.  In contrast, installment payday loan issuers require only salary slips to ensure that the borrower indeed gets a regular salary.  Therefore, the high processing charges imposed on the borrower is completely unwarranted.  But the proponents of these loans contend that the percentage of defaults and frauds is very high and charging high processing fees is justified.  

Unfair Practices of Collection: 

The borrower is exploited even in the procedure of collection.  Many lenders collect post-dated installment checks from the borrowers in advance.  On the days the installments are due, they present these checks and if they bounce due to insufficient funds in the borrowers’ bank accounts, they take the borrowers to court for check dishonor.  The borrower ends up getting entangled in legal hassles adding to his woes.

Laws Are Bypassed:

Often, lenders flout rules imposed by the government and charge higher interest rates or processing charges to the detriment of the borrower. However, the concept of installment payday loans is a good one and would help low income salaried people when they need money.  The lenders however should try to make things easier for the borrowers.  Affordable interest rates will surely reduce the number of defaults and will benefit both borrower and lender.