You cant go far these days without seeing a Payday Loan offer. Some come in the form of an actual store (often times found in strip malls or in the parking lot of regular malls) while other offers are presented exclusively on the Internet. But what exactly is a payday loan?
A payday loan is normally a very small loan (under 1,000). Unlike regular loans, payday loans rarely require a credit check. The terms on payday loans are much shorter than other loans and the borrower is usually required to pay back the loan in full within anywhere from two weeks to two months. Payday loans are marketed as a way to get fast cash to hold the borrower over until their next paycheck.
When a borrower applies for a payday loan they are required to present the lender with either a post-dated check or permission to debit their bank account on an agreed upon future date. The finance charge is almost always very high and often comes in the form of a fixed dollar amount as opposed to an interest rate percentage that is found with a standard loan. Many payday loan companies are not licensed or regulated by consumer laws and will charge the borrower the maximum amount that they think they can get. Payday loans are generally very costly for borrowers and should be avoided if possible.
If you do find yourself in an emergency situation where you need to use the services of a payday loan company, then it is absolutely imperative that you repay your payday loan as soon as possible. If youre unable to repay your loan at the end of the agreed upon term, youll be charged hefty fees in addition to the initial finance charge. Payday loans are much more expensive than other borrowing options. The average APR (annual percentage rate) on a payday loan is somewhere around 400%, however, its often as high as 5000%! If you have a credit card with available credit, you are almost always better off taking a cash advance from your card, as opposed to getting a payday loan. Even the highest credit card APR out there isnt nearly as high as most payday loan rates.
Now that youre aware of the potential pitfalls of payday loans, you can decide whether or not it is the type of loan product that fits your needs. Payday loans can be beneficial if youre in need of fast cash in a pinch; however, be prepared to pay the price!