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What are payday loans?
Payday loans, sometimes called payday advances, are short-term, unsecured loans, usually for small amounts. The only collateral that is generally required to apply for these specific loans is some type of employment record, such as pay stubs, although the term payday loans has become an abbreviation for any type of small short-term loan, including if not technically backed by a direct reliance on the borrower’s next paycheck. Payday advances, like any loan vehicle, are heavily regulated. These regulations vary widely from state to state in the United States and from country to country internationally.
Payday loans are a booming business
Payday lenders have had great success around the world, and they attribute that success to offering a service that was previously unavailable. They note that emergency cash loans offer an attractive alternative for people who are unable or unwilling to use less expensive conventional routes to borrow money. Some companies offering emergency cash advances in the UK have described their approach as a useful financial service for young Internet-savvy borrowers accustomed to the ease and convenience of instant online communication. These applicants often feel excluded from the conventional banking system. Today’s modern consumer, raised entirely on social media, can even apply for these microloans using their smartphones, with money transferred to successful applicants’ bank accounts in a matter of minutes.
Compare payday loans to other types of loans
Many types of short-term loans can seem expensive when the fees associated with the loan are counted as the annual APR. For that reason, payday lenders prefer to compare their loan products to bank overdraft fees and other fees traditional lenders use to recover funds. Many payday lenders don’t even characterize their business as banking, simply another form of Internet technology, used to connect willing borrowers with willing lenders.
Payday loans are available 24 hours a day, 7 days a week
As traditional outlets for loans become harder to find and require increasing amounts of paperwork, even for small loans, payday advances have stepped in to fill the gap. They are available day and night, seven days a week, and in many cases the process is so completely automated that loans are made without the borrower having to speak to another person. Once applicants have established a history of successful cash advance loan repayment, some lenders only require applicants to text the desired loan amount and desired loan term, and the money is instantly available.
So why would you pay the additional interest?
Sometimes it is an unexpected emergency, or it may be that an opportunity has arisen that you could not pass up. Are they playoff tickets? Has a friend gotten access to the ring seats in the “fight of the century”? Or maybe you have committed an unforgivable sin and have forgotten your partner’s birthday …
Whatever the reason, you are short on cash. If you don’t have credit cards and your friends and family may not be in a position to help. What do you do for a living?
It is increasingly common for those in immediate financial need to approach a short-term loan company for a “payday loan.” These loans are often unsecured, which means that the borrower has no collateral to provide. This turns the loans into a high-risk cash advance for the lending company. If the borrower redeems, there is nothing of value to collect. They offset the increased risk by charging very high interest rates.
The applicant generally must provide proof of employment and government-issued identification. The idea is that when the applicant’s next paycheck is issued, the funds will be used to pay off the loan. In some cases, loans can be made for the borrower to purchase a car or other expensive item. In these cases, there is a somewhat lower risk to the lender. The item can be repossessed if the applicant does not repay the loan as promised.
So what’s the bottom line
Companies from all over the world offer payday loan services, including Canada, the United States, Australia, and Great Britain. Rules and regulations regarding the amount of interest that can be charged and limits on loan amounts vary by country, state, province, or county where the payday loan company is located.
The industry is growing; possibly the fastest in the UK, where there are fewer regulations on how payday loan companies can operate. UK companies have expanded to Canada and Australia. In some states in the United States, very high-interest loans (such as those provided by payday loan advance companies) are illegal.
On-site check cashing is another service frequently offered by payday advance companies. Perhaps the customer does not have a bank account or wants immediate access to cash. A flat fee or a percentage of the check amount will be charged as a fee. Short-term loan companies often open early and close late to take advantage of those who need immediate access to cash.
Many companies now offer online applications for payday loans. They usually offer a quick decision on the client’s request, sometimes within an hour. The cash can then be deposited into a bank account or collected by the borrower at a company office.