Market Overview

Payday Loans And Payroll Loans: Parsing The Difference

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Payday loans are designed to cater to the poor, roping them into a system of debt from which escape is nigh-impossible. Underhanded means of presentation and approval are often used. In contrast, payroll loans are seen as a legitimate means of business support when there’s an emergency or something of that ilk, which requires a larger sum of money very quickly; often in the amount of ten thousand or more dollars.

Payday Loans Are to Be Avoided

This is going to get slightly confusing because of the similarity in terminology. Just remember that payday loans are very seldom, if ever, a good idea.

There are times when an emergency could make one seem worth doing, but it is the same kind of last resort option as the severance of a limb. Sound like an exaggeration? Payday loans, or “cash advances” as they are sometimes called, are unsecured loans made in the short term.

The idea is, you have a steady job, and you’ll get paid at the next paycheck; but since you’re already living check-to-check, you can’t spend your earnings on a new car or rent, or some sum that’s a little higher than your ability.

So you get a payday loan and pay the bill you needed to, but then you can’t reimburse the loan until your next paycheck, at which point you’re broke again and have to take out another loan; but in the meantime, interest has increased what you owe.

While some jurisdictions limit APR (annual percentage rate) interest on such loans, and some jurisdictions ban payday loans altogether, there are many who neither ban nor restrict them. This is why The normal APR on a payday loan is about 36% to 40%. That is incredibly high.

Examining that mathematically, if someone received a payday loan of $300 with a two-week compound time at 30% APR, they would owe the lender $400 within 14 days of receiving the money. Within a month, they’d owe $533.33. In two months they would owe $901.00. The interest compounds on itself in a payday loan.

So instead of 30% going against just $300, after it has compounded the percentage rate increases. At such a rate, within six weeks the debt has tripled. If you’re in a tight spot, a payday loan is just going to make money tighter, unless you really can turn around and reimburse your lender the day you’ve taken out the loan. Unfortunately, many don’t have this autonomy, and become stuck in a debt cycle. But even worse, because of the negative onus payday loans have evoked, people regularly confuse a payday loan with a payroll loan. There’s a big, big, difference. 

How Payroll Loans Work?

Payroll loans are also short-term loans that have higher levels of APR, but the difference here is in the degree of magnitude. A payroll loan is going to be in amounts between $2,000 and $100,000. They’re designed to help out a small to mid-sized business in a pinch, and often end up working in the interests of all parties concerned. There are advantages that make payroll loans immediately recommendable as well; especially in the case of lucrative start-ups. With a payroll loan, you get instant approval (usually within three to five business days, if not sooner), no fees are hidden, no payments are necessary to establish a line of credit, there are no obligations to take loans online once approved, and fees are only paid on the working capital you take. Funds can be accessed anytime, anywhere.

Certification

There are a number of different payroll agencies out there, but you’ve got to use trustworthy lenders. One of the biggest considerations when asking about payroll loans comes in the form of certifications. You’re looking for TRUSTe certification, and nothing less than an A+ rating with the Better Business Bureau (BBB). Such a group is going to take client security seriously, follow the proper regulations, and protect information--because they have the above-listed certifications, and the right history. Sometimes the business in question involves things like proprietary technology, and its salability or usefulness may require appraisal for loan approval. Accordingly, that information must be closely, securely, and respectfully handled.

Helping Small Businesses

Finding a payroll loan service like this can be a life-saver in many situations for small to mid-sized businesses. Sometimes a newer business may not receive its profit until mid-month invoices come skating in. Payday loans can be a perfect crunch solution, but should not be pursued as a long-term method of financial sustenance. Like payday loans, a cycle can become an issue if this measure is pursued too often. Still, compared against payday loans, payroll loans usually end up being much more useful, helpful, and successfully managed.

Posted-In: Personal Finance

 

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