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Pay Day Loans MN


Definition Of Payday Loan

A pay day loan mn(also called a cash advance loan) is a short-term,unsecured loan of a small quantum(typically up to $500) released by the Banker without a credit check.It is designed to bridge the gap between borrower's cash inflow and the pay days. The Bank provides money to the customer and the customer pay back by auto debit to his/her checking account on the payday designated by the customer. The cash advance loan can also be in the form of cash provided against a prearranged credit instrument like a credit card.

Pay day loan mn are also popularly known as sub prime loans, small-dollar loans, deferred deposit advances, direct deposit advance, refund anticipation loans (for federal tax filers) etc. Payday lenders typically operate through small stores or franchises, but large financial service providers are also not rare to find. Some mainstream banks offer a direct deposit advance scheme for customers whose paychecks are deposited electronically from the employer's end, at the end of every month. Some income tax preparation firms offer "refund anticipation loans" to federal tax filers, after claiming refund of tax, but before getting it. As of 2001, payday lending is legal in Canada and in twenty-five states in the U.S.A. In the other States of USA, a payday lender may affiliate with an out-of-state chartered bank to conduct business.

Security & Methodology

In lieu of the loan, the borrowers usually provides the lender with a check or auto debit authorization for the loan amount plus finance charges. The check is either post-dated (dated on the next payday of the borrower); or the lender agrees to defer presenting the check for payment until a future preagreed date , which is normally two weeks or less. When the loan is due, the lender collects the loan by the following modes: - depositing the check, debiting the borrower's account, by having the borrower redeems the check with a cash payment. If the borrower informs the lender that he or she does not have the funds to repay the loan, the loan is often refinanced through payment of an additional fee. If the borrower does not redeem the check in cash and the loan is not refinanced, the lender normally puts the check or debit authorization through the payment system. If the borrower's deposit account has insufficient funds, the borrower typically incurs a NSF charge on this account. If the check or the debit is returned to the lender unpaid, the lender also may impose a returned item fee plus collection charges on the loan.

Risks & Dangers of Online Pay Day Loan mn

Many companies are offering pay day loan mn through Internet, whereby; just a few clicks can take you out of your financial distresses.

Survey of CFA with 100 Internet payday loan sites revealed that loans offered generally ranged from $200 to $2,500, with $500 loans being the most frequently offered. Finance charges ranged from $10 per $100 up to $30 per $100 borrowed. The rate charged most frequently was $25 per $100, or 650% annual interest rate (APR) if the loan is repaid within two weeks.

Although very much popular with the consumers nowadays, such loans has got their inherent disadvantages and risks for cash-strapped consumers.

The main disadvantage is the high finance costs. The Consumer Federation of America (CFA) has warned consumers to exercise extreme caution when using Internet payday loan sites, where loans due by the next payday, can cost up to $30 per $100 borrowed and borrowers typically face annual interest rates (APRs) of 650%. Internet payday loans cost up to $30 per $100 borrowed and must be repaid or refinanced by the borrower's next payday, according to Jean Ann Fox, CFA's director of consumer protection. She further stated that if payday were in two weeks, a $500 loan costs $150, and $650 would be electronically withdrawn from the borrower's checking account.

The Main risks involved are: -

a) Collection risks of check-based payday loans

b) Security risks of sending bank account numbers and Social Security Numbers throgh internet to unknown lenders.

Online payday loans are marketed through e-mail, online search, paid ads, and referrals. Typically, a consumer fills out an online application form or faxes a completed application that requests personal information, bank account numbers, Social Security Numbers and employer information. Borrowers fax copies of a check, a recent bank statement, and signed paperwork. The loan is directly deposited to the consumer's account and loan payment or the finance charge is electronically withdrawn on the borrower's next payday.

c) Risks of Unfavorable/Hidden Terms, Violation Of Terms, etc. -Many surveyed lenders automatically renew loans by electronically withdrawing the finance charge from the consumer's checking account every payday. If the consumer fails to have enough funds in account to cover the finance charge or repayment of the principal, both the payday lender and the bank will impose insufficient funding fees. Only 38 sites disclosed the annual interest rates for loans prior to customers completing the application process, while 57 sites quoted the finance charge. The most frequently posted APR was 652%, followed by 780%. Although loans are due on the borrower's next payday, many surveyed sites automatically renew the loan, withdrawing the finance charge from the borrower's bank account and extending the loan for another pay cycle. Sixty-five of the surveyed sites permit loan renewals with no reduction in principal. At some lenders, consumers have to take additional steps to actually repay the loan. After several renewals, some lenders require borrowers to reduce the loan principal with each renewal. Contracts from Internet payday lenders include a range of one-sided terms, such as mandatory arbitration clauses, agreements not to participate in class action lawsuits, and agreements not to file for bankruptcy. Some lenders require applicants to agree to keep their bank accounts open until loans are repaid. Others ask for "voluntary" wage assignments even in states where wage assignments are not legal.

Precautions While Opting For Online Payday Loans

CFA advises consumers: -

a) Not to borrow money based on giving a post-dated paper check or electronic access to a bank account as security.

b) Never to transmit bank account numbers, Social Security numbers or other personal

c) Consumers should shop for lower cost credit, comparing both the dollar finance charge and the penal interest rate to get the lowest cost credit available.

d) For help with financial problems, consumers can seek credit counseling help or legal assistance from experts.

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