A Payday Loan, more commonly called a Cash Advance, is a very short term loan. It’s lent on the agreement that the borrower pays it back with his next paycheck – hence the term “Payday Loans” – which you take to cover your expenses between paychecks.
It could happen that your weekly or monthly pay is not able to cover your expenses – and you may need a little bit more money to get you through those few days before your next pay check comes in. That’s where payday loans come in – they are small amounts lent for short period at high rates of interest – as the tenure is short and default rate is high.
While payday loans seem to cover a very real and practical gap, where borrowers really need the money the lender provides, there have been criticisms against the entire payday loan industry and the way interest is charged.
Payday loans are relatively new in Malaysia, written here are a few of their features:
Typically, payday loans are only used to cover expenses that cannot be covered by your regular pay. If you run out of money halfway through the month, or find yourself in a financial crunch, payday loans are typically used to cover expenses like:
Below is a list of documents you’ll need if you’re planning to take a payday loan:
To avail a payday loan, one must be:
Many people feel that payday loans are a financial product that takes short-term lending and interest collection too far.
Experts liken the payday loan industry to a vicious cycle that borrowers can’t escape from once they start borrowing.
The steps in a payday loan cycle have been explained as follows:
This being understood, payday loans must be considered a last ditch option to meet emergency expenses – and even then only after making appropriate arrangements to pay back the loan before it becomes due.
It’s important to keep in mind that payday loans charge the highest rates of interest among any other short-term financial credit product today. The rates and repayment terms may seem easy and achievable, but the reality is that living off payday loans is not a sustainable or viable financial plan.
One must only take payday loans if it’s absolutely necessary and appropriate arrangements have been made to repay it well before the due date.