Understanding Payday Loan Interest Rates
| Sometimes people find themselves in a financial dilemma, with a desperate need of some fast cash. One solution that people turn to when they are faced with this dilemma is a payday loan. A payday loan is a short-term loan, usually two weeks in length, with an extremely high interest rate. This type of loan appeals to people with bad credit who are in a drastic need of some money. While payday loans may appear to be a viable solution to people who are in need of some quick cash, people need to understand the interest rates theses types of loans charge; an interest rate which is considerably higher than an interest rate which is paid on a personal loan. It is easier to qualify for a payday loan than it is for a personal loan, which means that payday lenders are assuming more risk in the loans that they issue. This risk is passed on to the borrowers in the high interest rates that they charge. The only requirements that some lenders of payday loans ask for are that a borrower has a job, a bank account, and that they are of legal age. These requirements are an easy target for many borrowers to meet, which makes them easy targets for payday lenders. The interest rates that payday lenders charge for their payday loans can result in an APR in the triple digits. The rate is usually presented as paying so much money for every one- hundred dollars that a person borrows, an amount that is usually in the twenty to thirty dollar range per hundred. For instance, on a thousand dollar payday loan that charged twenty dollars on the hundred a borrower would be paying back a total of twelve-hundred dollars, a thousand dollars principle plus two-hundred dollars in interest. The corresponding APR on this example would be 521.43%. Payday loans are quite expensive; however, there are some advantages to a payday loan compared to a personal loan. A personal loan requires a credit check and it could take some time to be approved for the loan. A payday loan does not require a credit check and usually a borrower gets approval within a day and has their money within forty-eight hours. This is an advantage to someone facing a financial emergency. Another advantage to a payday loan is that there is that payday lenders are more lenient in their lending practices, a person with bad credit that is turned down for a personal loan would have an easier time being approved for a payday loan. It is not hard to meet payday lenders requirements; just a job and a bank account and you are set. There is also the advantage of direct deposit, some payday lenders will deposit the loan right into you bank account. Even though a payday loan has its advantages, borrowers do not need to forget that the advantages come with a price. Someone considering a payday loan should consider less expensive options before taking out a payday loan. If you can avoid a payday loan, avoid it. |
| Author Resource:- Oz Hoopes is a freelance writer. Learn more about payday loans at www.getecash.com/ |
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Instead of using payday loans, consider these alternatives: Build up an emergency fund in your savings account (sometimes easier said than done). And keep an open credit card for emergency expenses
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