Home > Payday Loans > Payday Loans: Short-term Loans For Your Pay Day Troubles
Payday Loans: Short-term Loans For Your Pay Day Troubles |
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Did you hear about payday loans before? Do you know how they work? If not, it's the right time for you to get a glimpse of payday loans. Payday loans are controversial loans in the U.S., but they are one of the most commonly misunderstood forms of credit. In the past, payday loans have been debated not only in city and state legislatures, but also in courts both regional and federal. Even several parties sued the payday industry from operating in the country. But the industry is in full bloom even with the allegations against it. Payday loans are short-term loans and meant for consumers who need quick cash and can repay the loan in two weeks or bear high interest rates. The concept of payday loans is simple. When you apply for payday loans, you need to write a personal check for the desired cash, plus a fee for the lender and interest rate. The lender holds your check for two weeks or until your next payday. On that date, you can either redeem the check with cash or allow the check to be deposited. But if you fail to cover the check, the lender collects another interest and holds the check for another two weeks. Lenders charge interest on the money they provide up front and charge a fee, usually a flat percentage of the principal, for the service. A $200 loan, for example, might cost a borrower $20 in fees (or interest). If that borrower has a full two weeks (the length of the average pay period) to repay that money, and that rate is annualized, he or she would have a 520% APR. To arrive at this figure, simply multiply the interest payment (20 dollars) by the number of pay periods in a year (26), and divide by the amount of the loan ($200). The result, 5.2, expressed as a percentage of the initial sum, comes out to 520. If you have an immediate, temporary financial crisis with no possible source of funds, and you think you can cover a postdated check, payday loans may be a good deal for you. Otherwise, these loans are not a very good option to deal in. The interest rates on them are too high. They even cross credit card late fees as far as interest rates are concerned. To be more precise, there is no cap on how much a payday lender can charge, no limit on how many loans a person can take out, or how many times that loan can be rolled over for a cost. Therefore, consumers often end up paying a lot of interest on payday loans, sometimes more than 500% a year. Let us take an example. Suppose you borrow $300. You postdate a check so it can be cashed in two weeks when you get paid. Typically, the payday lender will charge you $20 for every $100 borrowed. So, you write a check for $360, which the lender cashes in two weeks. Many payday loan customers can't pay the loan, so they pay the $60 fee and roll the loan over for another two weeks. Fourteen days later, they still owe the $300, plus another $60. In one month, the cost of taking that $300 loan has jumped from $60 to $120. So, in payday loans, consumers pay consecutive fees for getting no new money. However, payday loans can't be neglected. If you can pay them back in the stipulated period, you can get much needed help in crunches. These loans are easily accessible, and so can be very useful for emergencies. But you need to be very careful regarding their repayments, because once you fail you might be in great danger! |
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