No credit check and approval in seconds is the phrase that many pay day loan lenders use to reel in potential customers. A pay day loan is a small cash loan that is to be repaid usually within two weeks or on the borrower’s next pay day. It is an excellent option to have when life’s little surprises pounce. For example, unexpected car repairs, an emergency medical situation copay for must have antibiotics, a family emergency that requires unplanned travel across the country etc. Any number of situations can pop up and if credit lines are exhausted looking for a loan just until the next pay day may be an option.
Many people who seek out pay day loans do not have the best credit. Therefore, they will seek a pay day loan lender before going to a traditional lending institution. The interest rates on pay day loans are typically much higher than any interest rate received from a traditional lending institution. Pay day loan lenders may appear to be a blessing to individuals in dire financial situations with bad credit history.
Unfortunately, due to the fact that the pay day loan lenders often deal with people with poor credit issues the interest rates are often extremely high. According to the FDIC, these loans are classified as subprime or high risk. Also, the “emergency” that led to pay day lending services being sought may become extended or another emergency may sprout up before being able to pay off the first emergency loan. This often leads people to “roll over” the loan. This means they will pay only the interest on the loan and prolong the time that they have to pay it off.
Many people also seek out more than one pay day loan at a time and become trapped. They continuously are getting pay day loans just to last to the next pay check and end up paying an exorbitant amount of money in interest and fees. That is why many states have placed restrictions on the amount of money that can be borrowed, interest rates and the amount of time you must repay the loan. These state statutes have been put into place to protect consumers from falling into the trap of repetitive borrowing and losing large amounts of their pay checks to pay exorbitant fees.
There are store front pay day lenders and Internet pay day lenders; online pay day lenders are also governed by the laws of the state that they operate from. Some states have banned pay day lenders all together. Pay day loan centers are often placed in the poorest neighborhoods because the poor are often the people with bad credit and little to no savings for emergency situations. Many communities are fighting to have pay day loan stores removed from their neighborhoods. Pay day lending stores are a blessing to some and a nightmare to others.