Payday Loan Companies Are A Great Help In Emergency Situations

There is a universal need among the lower middle class and poor throughout the world. This involves the economic aspect, as the need lies in the lack of money during the latter days of the month. What can a person do if the need is urgent and he has a sudden unexpected emergency and the paycheck has already gone to pay regular monthly bills? In such a trying time a safe and sure solution for borrowers is payday loan companies.

Basically a payday loan is a small and short-term loan which can bridge the gap between the day a person exhausts his pay check and the next payday. Though these companies have existed in some way from time immemorial, today they are an organized network operating both online and offline. A borrower must be 18 years old with a bank account and a job yielding $1000 per month or more to get a loan.

These companies sometimes get a post dated check from the borrower and disperse the loan immediately. On the payday, the borrowers will owe the principal and interest amount, otherwise there will be additional fees for a bounced check and an increased interest amount to pay. In the case of online companies the entire process is completed online and the amount is deposited into the account of the borrower. On the payment day the required amount is collected from the borrower's account through the electronic clearing system.

However, payday loan companies are never short of detractors – either politicians or social organizations. They are facing legal battles in numerous countries including the US for their higher rate of interest and aggressive collection practices. The clients of these companies are often poor people with little knowledge of financial matters; therefore they sometimes have trouble paying back their loans. Generally, 10-20% of the borrowers default.

Unlike regular banks, these companies charge effective annual percentage rates which takes compounding interest into account. The APR in some countries like the UK is as high as 50%. In the US, some of these companies have earned $676 million in interest and fees.

Research undertaken by the Center for Financial Research dispels these charges. It reveals that owing to fixed operating costs and high default rates, these companies cannot charge lower rates and stay in business. Interestingly, on the social angle, property crimes have gone down drastically in places where these companies operate. These types of loans can be a blessing in emergency circumstances. Before getting a payday loan, you should be aware of the charges and how you will pay the loan back.

Even as the debate rages on, many borrowers are enjoying the benefits offered by payday loan companies. It is a fact that they can be a great help for many during these difficult times.

By: Russell Strider

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