About Payday Loans With No Credit Check Required

By John Walton

  • Overview

    Payday loans are a familiar storefront operation in poor and working-class neighborhoods, and are a means for those with bad or no credit to borrow short-term cash. However, payday loans are made on terms that are usually described as predatory, with triple-digit annual interest rates. Loans of this sort should be undertaken only as an extreme last resort.
  • Payday Loans

    Payday loans are unsecured credit, but are made on extremely unfavorable terms. In a typical example, the borrower usually writes a postdated check to the lender in the amount of the loan, plus fees. This might seem a form of collateral, but given that the check could easily bounce, it is not considered security by the lending industry. A small loan is made, with repayment typically due 2 weeks later. Credit checks are never required for a payday loan. The interest rate on the loan depends on the local law, as lending interest rates of this kind are typically governed by state and not federal law, but rates as high as 30 percent for a 2-week period are not unusual. Expressed as a more familiar annual percentage rate (APR), 30 percent for 2 weeks is almost 800 percent. A variant of the payday loan is the income-tax-refund loan. Credit reports are never a consideration for loans of this type, and given their disadvantages, they are never sought by people with any alternatives.
  • Instant Personal Loans

    Some of the instant personal-loan products available on the Internet are, in reality, disguised payday loans. They can usually be identified by their predatory terms, which will strongly resemble those of a payday loan. For example, a normal personal loan is based on a credit check, so if one is not required, it is probably a payday loan. Close examination of terms is always recommended for any borrowing, but this is doubly true when it comes to Internet-based personal loans. A variant of the Internet payday-loan operation is the Internet-based payday-loan consolidation lender, which will give you a payday-style loan to pay off your other payday loans!

  • Ensnared in Debt

    Defaulting on a payday loan ensnares a borrower in a debt trap, as the extortionate interest rates and compounding fees make it much harder for the borrower to pay off the principal of the loan and get out of debt. Consider that even the much-criticized high-interest rate of credit cards usually range between 15 to 22 percent for most consumers, while payday loan interest rates typically hover in the 400 to 600 percent range, and have been known to go as high as 800 percent. The following example illustrates the difficulties of paying off a payday loan. A person borrows $500 in a payday loan, with the amount due to be paid back to the lender two weeks later amounting to $600. +$100 might not sound like a lot, but expressed as an APR that is 521 percent. Now, assume that the payment is extended for 12 extra weeks, requiring installments of $100 each week for more than 3 months. The borrower has now paid $700 in interest on a loan of $500 over 14 weeks. This example does not include any fees or penalties, which would be normal for payday loans in most states and would both increase the loan principal and thereby increase the weekly interest payment. Of course, missing an interest payment would increase the principal as well.
  • State Laws Regulating the Payday Loan Industry

    Payday-loan operations are illegal in Georgia. The legal terms for payday-loan operations are so restrictive in the following states and territories that the payday-loan industry has withdrawn from them: Connecticut, the District of Columbia, Maine, Maryland, Massachusetts, New Jersey, New York, North Carolina, Oregon, Pennsylvania, Vermont, West Virginia, Puerto Rico, and the Virgin Islands.
  • Expert Insight

    Virtually any means of securing a loan is better than a payday loan. A borrower should go to friends and family for financial help, or ask an employer for an advance, before seeking a payday loan. Pride may be worth something, but not interest at 400 to 600 percent APR. Even title loans and pawn shops are superior alternatives for those with bad or no credit available. It should always be seen in the light of being the legalized cousin of loan sharking, and therefore treated with the utmost suspicion, caution and diligence.
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