Between the offices located on various corners and the online advertisements, you could say that payday loans are a recognizable service. On the other hand, very few people know that you can take a loan against your paycheck. They may sound like the same service, but there are some clear differences.
Loans against paychecks are a relatively new service, created when interest caps where placed upon payday loans. Banks offering short-term lending options in Ohio drove many payday lenders out of the state. However, just because the service is offered from your mainstream bank does not make it more trustworthy than a loan from a payday lender.
If you choose to go through a banking institution the bank will assess your credit history when determining if you are eligible and how much you are eligible for. Since the bank has direct access to your checking account, your debt will be automatically deducted from your checking account the next time your paycheck is deposited. The issue with taking a loan against your paycheck is the triple digit annualized interest rate.
Payday loans on the other hand, are provided by a licensed lender, not a bank. When you visit a cash advance location you provide them with a post dated check for the loan amount and fees. The lender will wait to deposit the check until the mutually agreed upon due date. This is typically your next payday. If you apply for a cash loan online your checking account information is required, and the lender will wait to remove the funds until your scheduled due date.
According to the George Washington University School of Business report 90% of those questioned were pleased with their last payday loan transaction. Eighty six percent of customers believe that payday loans are a positive financial service.
Only 33 states allow payday lenders to operate these days, but in the 90s payday lending surged. The rising cost of bank fees from bounced checks and late payments, protective legislation, and lack of competition lead to the expansion of the cash advance industry. With banks eager to get back into the short term lending industry, the landscape has changed.
Now customers in many states have the choice between going through traditional banking institutions or payday lenders. Which will you choose?