Payday loans, AKA installment loans, are short term loan instruments the dollar amount of which is pretty low. These unsecured loans are called “payday loans” because the duration of the loan lasts only for stretch of time until the wages of the borrower are automatically deposited into his bank account. Upon the next payday of the borrower, the lender will immediately withdraw a previously agreed upon payment from the bank account of the borrower. The dollar amount of this loan repayment may be for a small portion of the original loan, meaning that the remainder of the installment loan has to be paid back on the next payday. Typically, however, borrowers also have the option of paying the entire balance of the loan on that first payday after moneys have been lent. Whether the borrower is paying back some or all of the original loan amount on that first payday after the loan is disbursed, he will be responsible as well for paying interest, and sometimes, additional fees.
The interest rates on installment loans are extremely high, in comparison to other loans. Payday lenders set online payday loans at high annual interest rates because the borrowing demographic for payday loans is known to be at high risk of defaulting on credit. Every state sets its own regulations in regards to installment loan interest rates and borrowing limitations. For example, the State of Illinois determined that the borrowing ceiling for installment loans must be either the lesser of $1,000.00, or 25 percent of the monthly gross income of the borrower, whichever figure is lower. Other states, however, have varying requirements pertaining to borrowing amounts and interest rates. Some locales place limitations on the APR that payday lenders are permitted to charge as a means of preventing usury.
Installment loans are only meant to be a short term solution for people who unexpectedly run out of cash prior to payday. Because companies offering payday loans access the banking information of the borrower before the loan is even dispersed, it is almost impossible for a borrower to miss a payment. So too is bouncing checks to installment loans lenders grounds for filing a report on the delinquent borrower with ChexSystems. Unfortunately, this report can make it impossible to open a new account at any reputable bank. Therefore, you should only consider applying for installment loans if you are absolutely certain that you will be able to pay the installment loans back as scheduled.
Though lenders are not lawfully permitted to initiate criminal proceedings against delinquent installment loan borrowers, they are known for being extremely tenacious in their collection tactics, such as threatening borrowers with prosecution for check fraud. However, this practice is unlawful, having been denounced by the CFSA.
Installment loans are not loans you can walk away from. Thus, one should think very carefully before applying for installment loans. Taking out installment loans demands a great deal of responsibility from the borrower. Applying for short term loans or installment loans is not a decision to be made lightly.
Helpful links: www.shorttermloans.com