In the USA, it is generally seen that for meeting their sudden requirement of money before their payday, people borrow money from Payday loan sharks.

What does a Payday Loan mean?

The literal meaning of Payday is the day on which an employee’s salary is paid by the employer. So, in simple words, we can say that a payday loan refers to an advance loan that a person needs before his payday.

Payday loan means a short-term loan with a high rate of interest. Sometimes, it is also known as a cash advance. Because in this lender lends his money on the basis of borrower’s records, especially payroll information, credit profile and salary. A payday loan is considered to be an unsecured loan. In some countries, payday loans are restricted where usurer levy a huge tax on the borrower. That’s the reason jurisdiction of some countries set an APR (annual percentage rate) that need to be followed by the lenders. In the USA rate of interest on payday loans are limited to 36-40% APR by the Uniform Small Loan Laws. The government of the USA closely monitors the rate of interests levied by the lenders.

Why it is needed in countries like the USA?

Payday loans are used all over the world, with different names. But its working mechanism is the same everywhere. Under different circumstances (like an accident, unprecedented natural calamity, education fees, land settlement, etc.) Payday loans are needed by the people. People opt for payday loan even with a high rate of interest because they provide instant fulfilment of their requirement for money. A payday loan is such a necessity that makes a naked man to run.

How to obtain a Payday loan?

First of all, the applicant has to be a resident of the USA. He has a bank account there. The applicant has completed 18 years of age. He has a job, a salary account on behalf of which he can apply for the Payday loan.

Then the applicant needs to approach Payday loan providers at their outlets. These are small credit merchants who provide Payday loans with an application form that has to be filled by the applicant. Some Payday loan providers are also available on the internet.

Bad credit applicants are not easily entertained by the lenders. So, for getting a Payday loan one has to make a good relationship by returning the borrowed money on time.

Methods of collecting money by the lenders

In the USA, as per the Fair Debt Collection Practices Act, Payday loan providers cannot practice unfair or harsh means for collecting the loan from the borrower. It means lenders are not allowed to call the borrower before and after normal working hours. Earlier some Payday loan providers outsourced some third party for collecting the loan from the borrower by threatening him. But these sorts of practices were highly criticized by CFSAA.

A study revealed that most Payday applicants (white females) are ranging from 25-45 years of age. They are either divorced or African American earning less than $40,000 yearly.

The government of the USA is taking care of such issues to protect borrowers from the clutches of the usurers.