What Are Payday Loans?

Payday Loans - An Overview

The market of lending is a vast and competitive area.  In fact, there are hundreds of businesses out there that offer loans for those are strained with their monthly budgets.  For most, the easiest way to access the funds that they need is through the direct payday loans.  This is the process wherein the application process is directly submitted to the lending institution without the need of third party processors.  In this system, the borrower is also given access to the funds as soon as this is directly deposited to his bank account.

Thus, it removes the need for the borrower to go to the lending store and cash the checks or to bother going to the bank to withdraw the funds.  As an easy and quick application is done through the Internet, the funds can be released in as short as one hour. The short term payday loan lenders only process those applications that are within the law.  These lenders are actually governed by certain regulations created by the US government as a protection of the finances of the borrower.

There are some lenders before who abused their power of funds by charging the borrower huge amounts of interest for a small one hundred dollar cash advance.  Usury Laws on Payday Lending and the Truth in Lending Act are two common regulations that are created by the government to help guide these lenders on the limits of the loans.  These laws are the limits on the interest rates and the funds to be released to the borrower. Here are some common guides across the different states all over the US.  In Alabama, for example, the maximum loan amount of the lending institution is only $500.  For the interest rates, the limit of the rates is at 17.5 percent of the principal amount loaned.

The limits for the loans are the same for the states of Colorado, Alaska, Kansas, Kentucky, Missouri and Ohio.  There are some states like the Louisiana and Minnesota that only have limits of around three hundred to three hundred and fifty dollars.  This would all depend on the state and the amount of salary that the applicant has.  When it comes to the interest rates, most states have limits of only around ten to fifteen percent of the original loan value. On the other hand, some states across the US do not allow payday lenders at all.  In fact, they consider the loan as an illegal debt that could mean huge penalties for the lender.  These include the states of North Carolina, Vermont, Arizona and the District of Columbia.

The law states that when the lender goes beyond the limits of stated in the state regulations, the borrower has the option not to pay the loan as the lender has no right to go after them.  As the loan was illegal from the very beginning, the transaction and the contract signed by the parties involved are technically null and void.  On this aspect alone, the borrower must read in detail the fine prints of the contract.