The interest charges of the Payday Advances are high but why payday lenders need to charge higher rates? The answer is very simple and it is the risk which demands the cost of borrowing to be at top. With payday lenders the borrowers have the access to the cash quickly without running through the stream of paperwork and the hassles of credit checks. Banks and the credit unions lend money for long term basis, and their collection is based on periodic times. These institutions are highly concerned with the people whom they lend to, and mostly those are preferred who have good credit ratings, low debt-to-income ratio, and fall into a certain income bracket. This provides more security to the loan providers and it lowers the risk of default, therefore they lend at lower rates than payday loans.

Payday lenders, on the contrary, consider the job, income, and direct deposit as collateral in the applicant and thus the other criteria for credibility are ignored. Credit checks are not run by the loan providers so they are not aware what credit history leads the borrowers to fill form for these loans. These lenders do require that the applicants are having no more than two loans out at the time of application for this advance. They verify it through the CL verify system. Essentially payday lenders are taking far more risk than traditional loans by ignoring many details. There can be a borrower who had not paid back two or three payday loans might be, so the risk factor is very high.

The interest calculated for the Payday Advances on short term basis as compared to other financial institutions and therefore it seems higher to the people. A bank may give the loans of certain amount for 12 months at the rate of 10% only. It looks low but it is spread over the 12 months. With small scale loans the interest charged for two to three weeks only as that is the credit term for the loan. When you do the estimates, the rates will come out higher at glance but you end up paying more for long run loans.

Choosing the lender and loan is at the discretion of the borrower. Researching the loan providers and their rates can benefit the one who is interested to have the loans. Payday advances can provide a lot of benefits to the people despite they are costly. The application is processed in quick time, and funding is done to the accounts of the loan seekers directly. There is no need to wait or line up in queues.

Payday Lender provide the short term loans and the type should be remembered by the takers. Make the use of loans for which they are intended to. Do not overuse them or misuse them.