Payday/Salary Loans

A payday or salary loan is one of those quick financial fix-its when you find that you need to pay for something that your salary can cover (car repairs, groceries, tuition) but, unfortunately, your salary is still two weeks away. The process for a payday loan is very simple. The borrower will usually get a loan for a specified amount of money, which he or she will have to pay in a relatively short amount of time. Usually the payment duration will end by the next payday of the borrower, which is usually between seven to twenty days. In order to ensure that the borrower will pay off the loan within the short period time some companies will ask some form of security like post dated checks or give a bank account number.

Because of the nature of a payday or salary loan is as a short-term type of loan, the usual rules on lending will not apply. For example, the credit history of the borrower is not likely to be checked. This means that those with a bad credit record will very likely be able to get the loan. What lending companies that provide salary loans do look for is proof of employment and a checking or bank account. The very relaxed process of verification and almost non existent credit record check makes a salary loan quite attractive to many people especially those who have a poor credit history. Additionally, paying off the loan is easier because it is based on the next paycheck (which is sure to arrive if you are employed). Of course this has its own disadvantages, the most notable of which is a much higher interest rate. In fact, a salary loan may have one of the highest interest rates among all loan instruments. It is not uncommon for you to find a salary loan that charges up to 25 per cent of every 100 dollars that is borrowed. The imposition of a high interest rate is defended by salary loan providers as a security for the higher risk that they assume when giving salary loans. Anti salary loan advocates though see this as a form legal loan sharking.

As it is, a salary loan is only recommended to people who have a firm control on their financial situation. This means that they are less likely to allow a salary loan to go out of control because mounting interest rates on this type of loan can most likely cripple the borrower.