Payday Loans - How Do You Rate Your Lender
Dean Shainin

What are payday loans?

The Wikipedia describes the Payday Loan as- a small, short-term loan (typically up to $500) without a credit check that is intended to bridge the borrower's cash flow gap between pay days.

The Investopedia: Often the interest charged on these loans is a fixed number of percentage points above the prime rate. Additionally, there is seldom a grace period in which no interest is charged. These two factors make cash advances more expensive than many other types of debt financing.

Payday loans can be obtained in two ways. The traditional way is by driving to a lender and filing for the payday loan, the other one can be obtained online. The idea of payday loans is to provide short-term relief for people that are in a tight financial situation for short periods of time.

This is different from the process that one undergoes in regular financial institutions like banks where loans can be spread over longer periods of time to finance mortgages, buy more expensive domestic and personal requirements like cars and substantial home repairs and providing additional funding of a business.

The two basic differences also lie in the manner of acquiring the loan. Regular financial institutions, due to the nature of its operations and systems, will require filing out of forms, collateral and other qualifiers that the bank determines in order for a borrower to be approved for the loan. Payday loans require very little. Often the issue by which a payday loan can be granted or not is in whether the applicant can guarantee immediate settlement of the debt or not. This hinges on the proof that the applicant can provide that he has a regular employment or a regular stream of income that is normally proved by an income statement.

The rule of the thumb to be applied when trying to get payday loans is when the loan will be used and repaid immediately for short periods of time. Say no more than 17 days, then the payday loan can to be your solution. When the amount will be large and the borrower anticipates the repayment for longer periods and the amount requirement will be larger, a regular financial institution, or a fixed line of credit like a credit card will be more appropriate.

Different payday loan services charge different service fee rates (service fee rates can also be used interchangeably with the lenders interest rate). It is wise for the applicant who is entertaining in his mind to get the help of payday loan firms to shop around and find out the best service rate that is offered.

The best way to compare rates is through what is known in the business circle as the APR or the Annual Percentage Rate. The Annual Percentage Rate is the rate that the lender, whether the banks, financing companies, credit card companies or the payday lenders charge. This interest can be determined on a yearly basis.

The APR is a gauge by which the borrower can benchmark the rates as there are lending companies that can charge up to more than 600% per annum. When this is applied on short-term loans, on small amounts, it may not be as significant. But then there are loans that require roll over of the debt that will result in the borrower paying very high interest for the payday amount loaned.

Dean Shainin is a well known writer of http://www.MyWisdomBase.com a directory designed to provide current information, resources, tips, services and state of the art products.