A recent survey by the Canadian Payday Loan Association shows how expensive it is for a payday lender to issue payday loans.   The survey was done by Deloitte & Touche, and concluded that the average cost to issue and process a $100 payday loan is over $25.

The survey factored in operating costs, cost of capital, cost of supplementary capital (infrastructure and working capital), and bad debts. Operating costs were the biggest expense.  Here are the details from the survey (they show the cost to the lender for issuing each $100 loan):

- Operating costs: $20.43

- Cost of supplementary capital: $1.57

- Cost of capital: $0.52

- Bad debt costs: $2.69

Obviously, if payday lenders can't make a profit, they will go out of business.  While some might argue that would be a good thing, folks who need emergency cash will be left without options. 

Under the Truth in Lending Act, the cost of the payday loan - like other types of credit - must be disclosed.  As part of a payday loan application process, this is provided by way of a “payday loan” agreement, which you must review and sign.  Among other information, this agreement discloses:

    * The total amount financed (the amount being borrowed)
    * The finance charge
    * The Annual Percentage Rate (APR)
    * The terms of "repayment."

The fee, or finance charge for the loan is the dollar cost of the loan, and includes the dollar cost of all the interest to be paid over the term of the loan and the cost of all charges imposed by the lender.  Typically this is expressed as set fee charged per amount borrowed - say, for every $50 or $100 loaned.  The loan agreement must also express this as an APR, which is the cost of credit on a yearly basis.  This is a complex calculation designed to provide a uniform "true cost of credit" which the borrower can use to comparison shop.  Basically, the APR assumes that the total finance charge (which is equal to the total interest on the debt plus any other charges) is paid in equal installments over the term of the loan and then calculates the amount paid each year as a percentage of the amount financed.

The main attraction of a payday loan is that it typically does not require any credit check and, unlike credit cards or bank loans, you secure the loan with a promise to pay back the amount borrowed from your next paycheck.  Typically, all you need to qualify is a job and a paycheck!

One of the main advantages of a payday loan is that the application process is quick and easy.  You might apply at a storefront location, or, alternatively, <a href="http://www.nextdaycheck.com">online pay day loan</a> sites provide access to a number of preferred lenders using an application process that is accomplished completely online.  No store visits, no lines, and no faxing required!  

A typical application for a payday loan requires answering a series of simple questions, along with some evidence of a job and a regular paycheck.  If the application is in order, you will be provided with a loan agreement that sets forth the terms of the loan and requires your signature.  It is important that you carefully review and understand this agreement, which sets forth the terms of the loan – including the fees being charged and the terms of repayment.

Depending on the lender, you might write a personal check payable to the lender for the amount you wish to borrow, plus a loan fee.  The lender then gives you the amount of the check minus the fee.  If you’ve applied with an Internet based <a href="http://www.nextdaycheck.com">pay day loan</a> brokers, the funds can be automatically deposited directly into your bank account ready for you to use and enjoy.

Repayment is easy and convenient as well.  Your loan (principal and loan fee) is due on your next scheduled paydate.  If you provided a personal check, the lender will simply cash the check on the loan due date.  If you use an Internet lender, the loan is repaid by automatically by debiting your account electronically – there is nothing you need to do!

The payday loan process is an ideal way to access funds in a quick and easy manner.  However, these loans should only be used for emergency cash purposes and should not be part of a long-term borrowing plan.