In both the US and Europe, financial authorities attach great importance to the regulation of the microfinance industry. Creditors are obliged at the request of the authorities explaining to the borrower all main nuances, including the size of the overpayment, before issuing the loan. Also, if possible, the lender should let the client know that a quick loan is not suitable for long terms; its main task is to meet the needs of the client within 2-3 weeks. If the client does not understand this, then they can dissuade him from loan issuing.
This is a type of short-term money borrowing when an individual lends a small amount at a very high interest rate. The borrower, as a rule, writes out a personal check in exchange for cash, dated by the future number, for the amount of money he wishes to borrow plus its commission. The lender keeps a check and presents it for payment on the agreed date; usually it is a day after the date specified in this paper.
Although in the US, the Credit Transparency Act requires that creditors issuing loans before payroll disclose full information about the fees they charge to customers, if these institutions even had a bad reputation for their lending terms. Most borrowers who use credits before payday usually have a terrible credit history and low incomes. They may not be able to obtain a credit card and are forced to contact companies that issue such loans. Even if the loaner feels that the whole payment will be paid, for example, $ 12 for $ 100 for seven days, then reflected in an annual interest rate, it will be more than 600% per annum. Most of the payday loans are not handed out for more than 30 days, but can be prolonged for an additional fee, and their size usually ranges from $ 100 to $ 1500. A micro loan can be issued even if the client has an outstanding debt. Thus, microcredits for the United States are not uncommon.
The process of obtaining a loan before salary includes a borrower who receives a short-period unsecured loan that is repayable the next day after the payment of wages. As a rule, during issuing a short-dated loan, the borrower’s employment or income, as well as his credit history (bank statements, payment receipts, etc.) are reviewed, although some services do not check the real income of the borrower and use their own systems checking credit risks and creditworthiness of the loaner.
According to the conventional retail model, the borrower is visiting the branch of organization, getting this type of credit before salaries and receives a micro loan with a repayment period the next day after the payroll. The borrower writes out check dated by a future date that compensates the amount of money borrowed and the credit institution’s remuneration. In modern services the borrower fills in an application to get the loan online. The funds are credited to the bank card of the loaner, and the loan is repaid through electronic payments.
Despite a number of obvious advantages of this type of lending, designed to solve urgent difficulties and problems, it is quite expensive due to the large number of interests that will need to be overpaid within 30 days for providing credit services.