What is a Payday Loan?

The moment you are officially employed, we have this common mindset of saving as much money we get and not be enticed into anything that will incur debt in the future. However, with our present economic situation, reality hits us that what we are actually doing is the exact opposite. Credit institution or even private individuals who offer loan are swarming today’s society and is now becoming a normal trend.

One of this common type of loan is what you called Payday Loan. But what is a payday loan?

A Payday Loan is a type of a short-term borrowing where an individual borrows a small amount at a very high rate of interest. Commonly known as cash advance loans or check advance loans, the borrower typically writes a post-dated personal check in the amount they wish to borrow plus a fee in exchange for cash. The lender holds on the check and cashes it on the agreed upon date, usually the borrower’s next payday.

The amount of money one can borrow in a payday type of loan varies but mostly some lenders restrict the size of the first loan they will offer. Like other kinds of loan, interest rates still applies covering a certain period of time and might incur additional charges or fees should you missed a payment.

Working poor or those who have a hard time in making ends meet each month are among the target markets of payday loan lenders. Although this can be helpful to borrowers, the downside for the latter comes with them being dependent on loans and not being able to cut this cycle as soon as possible. Strict planning of your monthly budget or securing an emergency fund if possible can prevent you from getting payday loans. You can also address your spending issues and avoid buying unnecessary items can help you budget properly as well.

Just remember not to abuse the opportunity of applying for payday loans. Bear in mind that this is a not for free and you need to pay it back with compounding interest so better be careful in whatever purpose your loan will serve.