Although there is no exact definition of the term payday loans, it is generally a high-cost, short-term loan, usually for $500 or less, that is usually due on your next payday. Depending on the laws in your state, payday loans may be available through local or online merchant lenders. Although it is a short-term, expensive loan, you could get the best offer from slick cash loan. We recommend choosing the best financial institution to apply for a payday loan, as most of the organizations are frauds.
Get to know why it is expensive
While payday loans can provide much-needed emergency cash, there are dangers you should be aware of, right.
High Annual Percentage Rates
Let us say you take out a $500 loan for two weeks that charges $15 in fees for every $100 you borrow. If this were expressed as an annual percentage rate, those surcharges would convert to an APR of nearly 400%.
Short-term terms
Typically, you have to pay off a payday loan within two to four weeks of the initial loan. Check the regulations of the state where you live as they differ from state to state.
Additional costs
If you cannot repay the loan within a short period, additional fees may be added on top of the initial loan charge. Those costs start to add up if you keep rolling over the debt or if you keep borrowing. Nearly a quarter of initial payday loans continue to renew nine or more times. Some of those surcharges may include –
- An insufficient funds fee: if you do not have enough money available in your bank account when the lender tries to cash your check or tries to make an electronic withdrawal from your account.
- Late fees: it is when you do not make your payments on time.
- Refinance fees: it is charged on top of the original loan and the initial charge when the borrower wants to postpone the loan’s due date.
Does not generate credit
People with poor credit may not have access to loans with better terms. However, payday loan lenders typically do not report your credit history to credit bureaus, which means payday loans do not help you build credit.
How do payday loans work?
Payday loans may have different names — cash advance loans, deferred deposit loans, or online payday loans — but they all work more or less the same way. To apply for a payday loan, you may need to write a postdated check made out to the lender for the full amount, plus any other fees or charges. Alternatively, you can authorize the lender to withdraw money from your checking account electronically. The lender then gives you the cash. The loan is normally due on your next payday, which can usually be in two to four weeks. If you do not pay the loan and finance charges by the due date, the lender may cash your check or charge your bank account electronically. Many of the states that allow this type of loan limit the amount that can be lent and the accompanying fees.
