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Consequences to Defaulting on Your Payday Loan

Payday fast cash loans are short-term loans based on the borrower's personal check, or pre-authorized bank draft, for future deposit. Borrowers write a post dated check for the amount borrowed and any interest or fees to receive their cash.

This is the lenders way of ensuring he will have your repayment. With everything so convenient these days, some lenders are even willing to send money to a borrower's account as well.

Lenders hold the checks until the next payday when loans and the finance charge must be paid in one lump sum. To pay a loan, borrowers can redeem the check by paying the loan with cash, allow the check to be deposited at the bank, or just pay the finance charge to roll the loan over for another pay period.

Payday Loan Terms

Payday loans range in size from $100 to $1,500 depending on legal state maximums. The average loan term is about two weeks. Loans cost on average 470% annual interest (APR). The finance charge ranges from $15 to $30 to borrow $100. For two week loans, these finance charges result in interest rates from 390% to 780% APR. Shorter term loans have even higher APRs.

Requirements to Get a Payday Loan

It is really quite simple. All a consumer needs to avail a payday loan is a bank account in fairly good standing, a steady source of income and personal identification. Lenders do not conduct a credit inquiry or ask multiple questions to determine if a borrower can afford to repay the loan.

Payday Loan Industry

Payday loans are offered by payday loan stores, check cashers and pawn shops. Some rent-to-own companies also make payday loans. There are loans that can be availed via toll free telephone numbers and over the internet.

At the end of 2006, the Center for Responsible Lending reported about 25,000 payday loan outlets in the United States and annual loan volume of at least $28 billion, with almost $5 billion in loan fees paid by consumers. Industry analysts estimate annual loan volume of more than $40 billion, with over $6 billion in loan fees paid by consumers.

New Protections for Military Service Members and Dependents

New federal protections for Service members and their families took effect October 1, 2007. The Department of Defense regulations apply to payday loans, car title loans and tax refund loans.

Lenders are prohibited from charging more than 36 percent annual interest including fees. They also prohibited from taking a check, car title, or tax refund to secure loans and using mandatory arbitration clauses in contracts.

Risk and Cost of Checks for Loans

It is good to know that this can be a risky business if you are not financial responsible for yourself. Failure to repay a loan leads to bounced check fees from the lender and the borrower's bank. Returned checks cause negative credit ratings.

A consumer could lose their bank account completely if too many bad checks go through in a certain amount of time. Banks can see the trend that some people have of bouncing checks and debits so they can get what they need right then.

Coercive Collection Tactics from Check Holding

Basing loans on personal checks leads some lenders to using coercive collection tactics. Some lenders threaten criminal penalties for failing to make good on checks. In some states lenders sue for multiple damages under civil bad check laws.

Internet Payday Lending

Internet payday lending adds risk to payday loans. Borrowers apply online or through faxed application forms. Loans are direct deposited into the borrower's bank account and electronically withdrawn on the next payday.

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