Discover: our comparison of the best payday loan offers
According to the last annual report of the French association of financial companies (ASF), credit institutions and banks granted payday loans in 2013 for a total amount of 11.045 billion USD, against 10.672 billion during the previous year. Or significantly more than the “allocated” credits, which in turn cap at 9.95 billion USD!
In fact, the flexibility of this type of credit appeals to both borrowers and lenders themselves, for whom the payday loan requires less management fees. Be careful, however, to only borrow for valid reasons!
Payday loan: a definition
As the name suggests with some relevance, the payday loan is above all personal. This means that the borrower is free not to justify himself as to the use of the funds which will be loaned to him: unlike a request for allocated credit (car, motorbike, work, etc.), it is therefore not necessary to produce a quote, an order form or any purchase invoice. The payday loan, depending on the borrower’s needs, can be used interchangeably to fill a cash flow need, finance a car or household goods, supplement the vacation budget or simultaneously fulfill several of these objectives.
Be careful however: more often than not, the customer adviser of the bank or the credit organization will nevertheless seek to inquire about the purpose of your approach. You are free to answer or not, and in any case this information will remain verbal.
Imperatively established in writing, the payday loan contract must comply with certain obligations common to all consumer loans, including the display of a box containing all the essential characteristics of the loan, such as the overall effective rate (APR), the cost total credit, repayment duration and amount of monthly payments. A detachable coupon is normally included to allow the borrower, if necessary, to exercise his 14 day right of withdrawal.
The loaned amounts are very variable, and cannot exceed $ 75,000 according to the provisions of the Lagarde law. The repayment tenure is in line with depreciation over a period of 3 months to 7 years. The vast majority of payday loans are characterized by fixed rates and monthly payments. However, lenders are not prohibited from offering a revisable rate and even loans whose principal will be fully repayable in fine.
An essential choice for certain types of financing
The payday loan is a formula which can be chosen for comfort or on the contrary by necessity, when an assigned credit would not have been possible. We can cite, in the latter case, the situation of an individual who wishes to carry out the work himself and simply needs the loan to buy the necessary equipment: he will then be unable to produce any estimate drawn up by a professional and will therefore have to turn to payday loan. Another typical example is the purchase of a used vehicle: because it is important to be reactive and to be able to have the funds quickly, it is much simpler to take out a payday loan upstream rather than to suspend your decision on obtaining an affected loan.
This increased flexibility has some counterparts. Failure to deliver the purchased good or service, for example, will not result in the cancellation of the loan, as would have been the case with an affected credit.
payday loan: an advantageous formula for the lender
Credit institutions and banks willingly put forward their payday loan offers, and this with full knowledge of the facts. These formulas are often the most profitable for them insofar as the management costs are reduced : the money is paid directly to the borrower, by check or transfer, and not to the final service provider (craftsman, dealer, etc.) like this. sometimes arrives with an assigned credit. The lender, likewise, no longer has to worry about monitoring the actual use of the funds. Finally, as the borrower is less protected, the risks of a suspension of payment of the installments (default of the goods on delivery, etc.) are lower.
As part of a payday loan, borrower insurance is entirely optional. This is also the reason why its cost is not included by default in the APR of the credit. For large amounts or long repayment periods, it may however prove useful to take out a minimum insurance policy, including in particular the cover for death and permanent disability.
The conditions for early repayment of a payday loan are set by the same regulations as for other forms of consumer credit. For all contracts signed as of May 1, 2011, no penalty will be required by the lending institution below a threshold of 10 000 $ prepaid per year. Beyond this amount, a penalty corresponding to 0.5 or 1% of the amount reimbursed (depending on the remaining term of the loan) may be applied.
The reimbursement of contracts prior to this date cannot be subject to penalties of any kind.
Remember to compare the rate of your loan!
payday loans are undoubtedly the most flexible form of consumer credit, and therefore also the most negotiable. It is strongly recommended to actively compare the offers of different financial institutions. Brokers can also canvass these same establishments for you and use their bargaining power in your favor, to obtain you very competitive borrowing conditions!