Many are interested in getting a payday loan. But to have good terms, it is very essential to find the best payday loans.
About 12 million Americans take out the best payday loans each year. It is a type of short-term borrowing with high interest rates. Also called check or cash advance loans, the principal of payday loans is normally a part of the next paycheck of the borrower.
These are common characteristics Pew Research Center found among payday borrowers:
Based on the same report, by the time the first loan is repaid, the typical borrower has taken out eight loans, each amounting to $375 and $520 spent on interest alone.
For instance, you need to buy new tires for your car and decide to borrow $300 from a payday lender. Payable to the lender, you will make a personal check that is postdated for $340, plus $40 for finance fee. When applying for a payday loan on the internet, all the info are entered online. The lender then advances you $300 for a set period, usually 14 days.
By the end of the period, your payment to the lender will be a cash amount of $340. A check that is post-dated will be deposited, with an additional finance fee. If the debt is not paid in full, additional fees will be charged.
Extremely high levels of interest are charged by payday lenders. That can go up to 500% in annual percentage yield (APR). In most states, usury laws limit interest charges of installment loans to less than approximately 35%. However, payday lenders have exemptions that give them the right to demand high interest.
Before applying for a payday loan, consider other options first. Ask yourself if the case is an emergency or not. It is a fact that payday or personal loans are helpful for a one-time emergency such as medical fees. They are not a sound idea to cover unnecessary expenses. Is it possible to wait a while before buying new tires or to buy those tires when you receive your next paycheck? This arrangement may be more economical than paying charges for a payday loan.
During an emergency, payday loans can be a good source for quick and easy borrowing cash. For instance, you may ask a payday lender for an immediate and temporary financial aid such as the need to pay a medical bill, car repair or other one-time expense. Payday loans can be helpful for people who are not credit cards users or have no available savings. Because this loan type does not require a traditional credit investigation, and they are easy for people with financial problems.
It is imperative to repay a payday loan as soon as possible. When they are unable to repay quickly the debt, many people get into trouble with these types of loans. Being unable to repay the title loans at the end of the term, you’ll be charged expensive additional fees. Being stuck in larger financial problems is the result of being in a payday loan cycle for a long time. Payday loans compared to other methods of borrowing money are also much more expensive.
In many instances, 400 – 500% is the average annual percentage rate (APR) on a payday loan. If possible, it is better to use a credit card or tap into your bank account in the event of an emergency since credit cards have APRs from 9% to about 30%, while APRs of personal loans are generally lower than credit cards.
Most states adopt specific laws to regulate the lending industry. Usury laws regulate and define the terms and rates permissible. Some states have laws regulating how much the payday lender can lend to borrowers and how much they charge per loan. Payday lending outright is banned in states like New York. These laws are variable and payday lenders work and get permission by working around these regulations and partner with banks based in other states. You have to read the small print on the payday loan offer.
Involving millions of money, the payday lending is big business. According to The Community Financial Services Association of America (CFSA), they have more than 20,000 member locations. About 19 million American households have taken out a payday loan at some point.
Extremely high interest rates are the most obvious problem for payday loans. With their fee anywhere from $10 to $30 per $100 borrowed, this would amount to an annual interest rate of 261% to 782%. But there are also other dangers.
These dangers include:
And, at the same time, online lenders start harassing the borrowers with calls and letters from lawyers. If they are not effective, the lender will decide to sell your debt to a collections agency. This agency, aside from calling and writing, can sue you for bad credit. If it wins the case in court, the court gives the agency the right to get assets or get your wages.