Has there been a time when you have been badly in need of money and wished that you got some cash immediately without going anywhere and without any paperwork? Surely, something like that would be too good to be true, right? Wrong. There is a loan which you can get as easily as that - an online payday loan.
A payday loan is a loan which is lent based on an agreement that the loan would be repaid the next payday usually in 14 days time. At a time when there was no Internet, one had to go to the lenders shop for obtaining a payday loan. Then came a time when the borrower arranged for the loan through a phone call after which he faxed the necessary papers to the lender.
The Internet came and everything changed. Many activities could now be done online and obtaining a payday loan was one of them. Hence, the term ‘online payday loan’.
The term ‘fee’ of an online payday loan includes the interest and the processing charges. This fee is quite high compared to that of loans granted by banks. Though it may not seem much, if you calculate the APR that is the annualized percentage rate of interest, you will see that it is indeed very steep. This is the price that the borrower has to pay for the benefit he gets- no credit check and no documentation. The fees are high because the chances of default in an online payday loan are very high. These loans are usually taken by people from the low income groups who may not be able to repay the amount.
The government does not encourage the concept of online payday loan because of the high fee. It tries to protect the borrower by fixing a ceiling to the fees which the lender can charge. Some states in the U.S do not allow payday loans at all.
Taking an online payday loan may push the borrower deep into financial trouble as the fees are very high. This loan should be taken only in an emergency and only for the amount actually needed. The easy terms of the loan should not be abused.