One of the most important requirements asked by payday lenders when you want to get installment loans is a personal check. This serves as collateral to secure your repayment of the payday installment loan.
Payday lenders require a blank or unwritten personal check that will be returned when the borrower repays his loan in cash. In some cases, a borrower writes in a personal check for the amount he wishes to borrow plus the fee payable to the payday lender. Fees for payday installment loans are regulated under the federal Truth in Lending Act wherein the cost of the loan, the annual percentage rate (APR), and the standard cost of credit are disclosed to the borrower and are repaid on an annual basis.
When getting a payday installment loan, both the payday lender and the borrower know that sufficient funds to cover the personal check are not available when it is tendered. The payday lender agrees to hold the personal check until the consumers next payday. At that point, the consumer can either redeem the personal check with cash or a money order, permit it to be deposited, or renew the loan by paying another fee. Payday lenders charge the same fee to roll-over the loan although the transaction costs for a renewal are not the same.
Installment loans based on personal checks is more advantageous in terms of payment of fees rather than bank bounced check charges. A $15 per $100 payday loan fee is more of a bargain and cheaper compared to a bank’s $25 charge for a bounced check in addition to a merchants fee.
Use of a personal check makes collection of installment loans easier for payday lenders. It assures a payday lender that the borrower will pay his obligation. When a personal check is given as repayment for the loan, the borrower will most likely honor it to avoid prosecution for bad check charges or civil litigation for related damages. The use of the law and the criminal process gives payday lenders a payment collection advantage compared to other creditors in the market.
In addition, getting the borrowers personal check helps minimize debt collections. Payday lenders can save manpower and related expenses because they can collect the payment for the debt by sending the personal check of the borrower through a bank clearing process. Some payday lenders may require borrowers to sign an authorization to permit them to electronically withdraw funds from the borrowers bank account, using the Automated Clearinghouse system.