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A payroll loan is a cash advance that is given to a borrower based on their employment status and income. A payroll loan is also known as a payday loan because the amount of the loan is typically scheduled for repayment upon getting paid by an employer.
A payroll loan may be obtained easily with proof of income and identification. There are many payroll loan facilities that can process a request and provide cash within just few minutes or hours. However, certain criteria must be met in order to qualify for a payroll loan. Most payday loan lenders require the borrower to provide a checking or savings account as collateral and will extract the amount due from the account directly. Fees may apply in situations where a borrower does not have employee direct deposit because there is greater risk to the lender in that they can’t recoup the loan. This also generates a greater responsibility to the borrower, as they must ensure payments are made in full and on time. If a default occurs, the financial penalties from a payroll loan may be severe and can be very damaging to a person’s credit score.
A payroll loan is often used to subsidize an immediate financial need. Some examples of this may include emergency travel, repair to an essential automobile or purchase of inventory or commodities for resale. A payroll loan is poorly used as a supplemental means of income as it is a short-term solution with relatively high rates and fees. Most experts do not advise the use of payroll loans, simply because they are expensive, risky, and many providers have been found to be rather unscrupulous.