Explicit Finance
A check loan is a small, short-term, high-rate loan provided by finance companies and others. The borrower writes a personal check payable to the lender for the amount they want to borrow plus whatever fee the lender charges for the service. The lender then either gives the borrower the amount of the loan and holds the check or, with the borrower’s permission, electronically deposits the amount borrowed (without the fee) into the borrower’s bank account. The borrower redeems the check when repayment is due (usually payday) with cash or money order or authorizes a direct debit from his or her account.
If the check loan is not repaid, the lender can cash the check or the borrower can sometimes arrange to rollover or extend the term, in which case another fee is charged. The fee can be charged either as a percentage or as a fee for every $50 or $100 borrowed. The amount you end up paying depends on the amount you borrow and the length of the loan and also on the rate and other costs the lender charges. These latter can vary, so it pays to shop around. The typical fee will be around $15 per $100 borrowed, which equates to an annual percentage rate of 391%. If you rollover the loan three times, you end up paying $60 to borrow $100.
If a check loan can be so expensive, why are they so popular? One important reason is that there is usually no credit check, so even people with a bad credit record can get the money they need. Another good reason is that it is so straightforward and simple. You can walk into the lender’s office, apply over the phone, or do it on the internet, and have it all done in 20 minutes or so. If you do it in person, you may get the cash on the spot. Otherwise, the money will be in your account within 24 hours. You don’t have to fork out for any up-front costs. And no-one else need ever know you got a check loan.
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