October 12, 2007

Short-term loans

Dad didn't earn much as a clerk in a mining company. When he left the company after the collapse of the mining industry in the 1990s, his last drawn pay was less than RM1,000. With his meager salary, he had to feed his mother, wife and four young children. Luckily most of the basic necessities were provided for by the company. We lived in staff quarters where water and electricity was provided so dad needn't have to spend on utilities bill, except for the telephone.

To help its employees get by, dad's company had an interesting practice whereby the staff was given cash advance of their salary in the middle of the month, normally amounting to half-month salary. At the end of the month, they would be given the other half. This helped the generally low income workers to get by. I see a similarity between this practice and the modern Payday loans.  Payday loans are short-term loans ranging from $100 - $1500 and application is done through the internet. The advantages of an internet loan are that the process can be done securely and anonymously from one's home and the loan process is often completed faster. If approved, the loan amount is sent overnight via wire into the applicant’s checking or savings account.

It's relatively easy to have the loan approved. Employed people with a minimum monthly pay of $1000 and have an active checking or saving account will qualify. The loan term on Payday loans typically ranges from 4 to 30 days, coinciding with the applicant’s next payday from his or her employer. This is a viable solution for people needing emergency cash. However, one must be disciplined to pay off the loan when payday comes. Otherwise, the interest incurred on the outstanding balance may get one deeper and deeper into debt.

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