What is a Payday Loan?
A payday loan is usually repayable on your next payday, although it is possible to renew your loan until subsequent paydays. To apply for a payday loan you must be employed and have a bank account with a cheque book. A poor credit rating or debt history is initially not a problem.
Here is how it works:
Usually, a borrower writes a personal cheque payable to the lender for the amount he or she wishes to borrow plus a fee. The company gives the borrower the amount of the cheque minus the fee. The fee charged for a payday loan is usually a percentage of the face value of the cheque or a fee charged per amount borrowed.
The company agrees to hold the cheque until your next payday. At that time, depending on the particular plan, the lender deposits the cheque, you redeem the cheque by paying the amount owed in cash, or you roll-over the cheque by paying a fee to extend the loan for another two weeks.
A payday loan is very convenient if you find yourself a little short of funds at any time. The most obvious drawback of a Payday Loan is that they can be expensive. The interest rate varies from lender to lender so do shop around to find the best deal.
If you decide you must use a payday loan, borrow only as much as you can afford to pay with your next pay cheque and still have enough to make it to the next payday.