Advance till payday loans - easy loan, fast money for emergencies

I'm sure that you have seen those Advance Till Payday places. They might work out of a pawn shop or even be their own little business. I've seen ones that will sell you a piddly little piece of jewelry for a buck and give you back up to $500 in change with the cost of the jewelry taken out of the money they loan you.

I checked into them a little bit after being asked to discuss them and, of course, the first place I looked was the Federal Deposit Insurance Corporation (FDIC) website. These are the guys that preserve and promote public confidence in the U.S. financial system by insuring deposits in banks and thrift institutions.

The FDIC explains how Payday Loans work:
"In return for the small loan - usually less than $500 (See Chart 1) - the borrower provides the lender with a check or debit authorization for the amount of the loan plus the finance charge. The lender agrees to defer presentment of the check until the customer's next payday. At the next payday, the customer may redeem the check by paying the loan amount plus the finance charge, or the lender may cash the check. In some cases, the borrower may extend the loan by paying only the finance charge and writing a new check."

These are short term loans made in small-dollar amounts that are unsecured. The borrower simply promises to pay the lender back, plus finance charges, from their next paycheck. The annual percentage rate can range from 300 to 1,000 percent or more.

In 2001 the average loan amount was between $201 and $300. The typical borrower is someone that has cash flow difficulties and few alternatives. They are also often repeat customers. According to the FDIC website, "the prevailing underwriting criteria of most payday lenders require that consumers need proof only of a documented regular income stream, a personal checking account, and valid personal identification to receive a payday loan." This makes it a very easy loan to get for short term emergency needs and therefore very appealing, despite the cost, to many people with few alternative borrowing options.