Short-term loans that are backed by a signed, post-dated personal check are called PayDay Loans. A borrower will write a check for the borrowed amount plus a finance charge, to be cashed on the due date, which is usually the following pay day. Sometimes borrowers and lenders choose to trade the personal check for cash, which conveniently avoids bank transactions. Either way, payments are due on pay day, and this is why they are called payday loans.
Sometimes payday loans can be setup to automatically withdraw payments from the borrower's back account. In some cases the loans are setup to renew on pay day, with only the finance charge withdrawn from the borrower's account. This type of payday loan is sometimes called Internet Payday Lending. In fact most payday loans can be rolled over, as long as the borrower pays the finance charge each payday.
People find this method of obtaining loans to be extremely helpful because large amounts, usually between $100 and $1000, can be borrowed immediately and sometimes without a credit check. Typically the loan is due the following payday, but sometimes the due date can be extended for more than 2 weeks.
The only downside is that payday loans can often have high finance charges, with annual interest rates (ARP) as low as 300% and as high as 800%. This means a loan of just $100 can cost between $15 to $30 in interest. Payday Loans with a shorter term can have an even higher interest rate. Sometimes we just need a couple hundred or even a couple thousand dollars in a pinch, and this is where a payday loan will come to your rescue.
Although you can avoid a credit check by opting for a payday loan instead of a bank loan, lenders usually do require borrowers to have an open bank account in good standing, as well as a legitimate income stream and some form of legal identification. Lenders typically do not investigate the borrower's history or ask for references, a bank account and source of income is usually enough to prove that the borrow can repay the loan.
High interest rates are not just a free-for-all, don't be fooled. Many locations have an upper limit to the amount of interest a PayDay loan lender can charge. PayDay loan operations are authorized by state regulations and laws in 33 US states. Of those 33, 16 states have imposed rate caps on payday loan interest rates. Military service members are protected by Department of Defense regulations. Lenders may not charge more than a 36% annual interest rate, which includes borrowers fees, check fees, debit authorization, or taking collateral property such as car titles.