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Devendra Mishra asked:




The ‘no credit check payday loan’ or the ‘faxless payday loan’ is a fast, no-nonsense way of getting limited amounts of money at short notice. As the names suggest, this loan may be availed even by people with poor credit histories. They are paperless loans that involve minimal procedural roadblocks.

How does the no credit check payday loan work?
Suppose you need to borrow $100. You may apply for a payday loan if you can provide your last pay stub and details regarding your work in the application form. These are called no credit check loans as they may be availed even by people with poor credit histories. The lender does not inspect the credit history of the borrower prior to sanctioning the loan.

How is the rate of interest calculated?
No credit check payday loans are high interest, short term loans. Generally, lenders may calculate the rate of interest in two ways:
1) As a percentage of the amount borrowed
2) As a set amount for every dollar borrowed ($20 for every $100 borrowed)

The lender asks you to deposit a postdated check for the loan plus the interest amount. They then deposit the loan amount in your savings account.

These loans are called payday loans because they are intended to bring fast relief for people who need some extra cash in between two paychecks. On the day you receive your paycheck, the lender cashes the postdated check and recoups their money. Of course, the borrower may ask for an extension, in which case, the loan is extended after loading the additional fee to the original amount. Every time the loan is rolled over, a fee is charged.

The no credit check payday loan is quite popular because all that the borrower needs to avail the loan is proof of regular income and a checking account.

In recent times, these no credit check payday loans have drawn some flak, with some studies claiming that these loans could easily drive customers into a debt trap. A CNNMoney.com headline likened these loans to ‘legalized loan sharking’. However, a study conducted by Veritec in 2007 shows that most of the criticism is based on the assumption that borrowers roll over their loan at least 5-7 times. When this happens, high interest rates pile up and at some point, the interest amount exceeds the original loan amount.

However, this is simply not possible because of existing rules against rolling over. In this regard, it is important to note that some states (approximately 22 states) have strict regulations against rolling over payday loans. Some states even provide a grace period so that customers may pay off their loan without attracting any additional fee. Thus, the state safeguards the borrower’s interest and prevents them from taking additional loans.

Jessica