How much does a payday loan cost?
We see their advertisements everywhere, beckoning us to join in and get some of their quick money. Well, this quick money certainly is not free money. First let's talk about how much these loans are for. Depending on your state's legal maximums, payday loans can range from $100 to $1500. Next, there will be a finance fee. Finance fees vary. But assuming you borrowed $100, the fee may be anywhere from $15 to $30. This means that you will end up paying an annual interest rate (APR) of anywhere from 390% to almost 800% for a two-week loan. The APR is even higher for a shorter term loan. Whereas you might pay about 57% on an average loan.
How payday loans work?
You can secure a payday loan through a personal check or have it transferred into your bank account electronically. You will agree upfront to pay the amount that you want to borrow, plus a fee, by writing a personal check or agreeing to pay electronically. Once you have agreed to pay the loan back, it can take a few hours to a day to receive funds. Once it comes time to pay back the money, you have a choice to either pay the loan or renew it for an additional fee. If you choose to pay it off, your check will be cashed or funds will be removed from your account per your previous arrangement. If you choose to renew your loan, you will be charged an additional fee for another two-week period.
How consumers get sucked into payday debt traps?
It is easy for consumers to get sucked into a borrowing cycle that leads down a really bad road. The thing about cash advances is that they are meant to be used within short time frames of time. But this isn't always the case. Consumers tend to get a higher loan amount than they can afford to pay back. When this happens they have two choices to make. They can either get the loan extended and have their debt get even greater, or they can pay off the debt and take out yet another loan. Neither choice is ideal.
When should I use a payday loan?
So you're in a pinch, and you're thinking about using a payday loan. The first thing you want to do is to take a moment to think about the fact that using a payday loan might get you into even deeper trouble. If it's still worth the risk, then you need to consider what you need it for, if it can wait until your next pay check, and if you have any alternate choices that would have lesser consequences.
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