Cash Basis Loan
All loans require some interest payments along with the amount of principal you owe. (Unless you borrowed from your brother-in-law and have no intention of paying it back). A cash basis is one that records the interest earned only when the loan payments are made by the borrower.
These types of loans are for those gone bad (not paid for 90 days or over), as regular loans assume consistent payment of both principal and interest. Cash basis loans are considered to be "bad debt" by the bank, since there is little or no hope the loan will be repaid.
A bank could always hire a collection agency to call borrowers until they pay up (or change their phone number). Or if the loan was secured by collateral such as a house or a car, the bank can repossess it to pay the loan. Remember all of this next Thanksgiving, when the ol' brother-in-law again gives you "the look" and sheepishly asks you to help with the (other) turkey.
Related or Semi-related Video
Finance: What are Payday Loans?25 Views
finance a la shmoop what are payday loans well this you want to stay away
from payday loans if you are so strapped for cash [girl gives out payday candy bar]
that you need to borrow money to pay the rent and you only have the promise of [hand takes money and leave I.O.U. sticky note]
your future paycheck to borrow against well something has clearly gone wrong [girl looking through papers]
along the way and you shouldn't trust the snazzy-looking television [TV add for loans]
commercials you're seeing out there a payday loan is a loan using the promise
of delivery of cash on your payday cheque as collateral and for most
companies loaning money on payday this is an extremely profitable business
because they quote only charge you 2% unquote for the loan but let's do the
math you're getting the cash two weeks early and last time we looked at a
calendar there were 52 weeks in a year or 26 bimonthly pay periods so if
they're charging you 2% to lend you money for one of those bimonthly pay
periods well their annualized rate that they're charging you for lending you
that money well that's 52 percent a year right 26 times 2% it's 52 percent a year
even the worst credit cards charge dramatically less than this rate of
interest so how do payday loan places get away with such high rent on your
hard-earned money well if you have to borrow money in this form with such
urgency well you're likely a very bad credit [woman sends man out to pay grandma]
risk and the perceived odds of you simply vanishing are well they're high [man gets into car with suitcase]
and the odds you are financially unsophisticated are almost by definition
certain because if you did do the math you get even an expensive credit card to
float you the thousand bucks or whatever your paycheck was or five hundred
dollars for that half month period to just get by until the next month right
so if you ever find yourself needing a payday loan let's hope you can work a
few long weekends saving enough money so that you don't need these things anymore [man working on computer]
and next time well you know what they say stay in school [school kids collaborating on project]
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