Payday loans are loans that provide borrowers with fast cash while they’re in between paydays. Payday loans are convenient for several reasons:
Payday loans do not require collateral (something of value) to “secure” the loan - a guarantee that you will repay the loan. If you don’t repay a secured loan, lenders can take your collateral. Repossessing a car is an example of lenders taking collateral for unpaid secured loans. Since payday loans are unsecured, lenders depend on your promise to repay your payday loan.
Payday lenders offer loans from $100 to $1,000, allowing borrowers to obtain the cash they need when they’re in a quick fix. Payday loans are intended for emergencies, when you’re in a jam and in between paychecks. Average amounts of payday loans are $300, enough to cover unexpected expenses but not too much more.
The Internet makes payday loans easy to get in no time. Request your loan amount, provide your information and wait to be approved. You may even get your payday loan within an hour! And you won’t even have to leave your house.
Payday lenders have encrypted websites to ensure that your information is kept just between the two of you. While searching for payday lenders, make sure that you are on legitimate and trustworthy payday loan sites before providing your information.
Payday loans are almost too easy, but that’s because fast cash with no credit check and no collateral is very expensive. Payday lenders take a higher risk when they lend to people without performing credit checks because bad credit borrowers are less likely to repay debt. The risks increase when there’s no collateral to back up the loan because the borrower is not as compelled to repay the loan and the lender cannot take anything from the borrower to recoup losses. Payday lenders recognize these risks and charge enough to cover potential losses.
Payday lenders charge a flat fee for the loan, but when you consider the cost in terms of APR (Annual Percentage Rate, or the interest rate charged over a year’s time period), the loan is quite expensive.
Charging $15 to borrow $100 for 2 weeks seems reasonable. However, because the length of the loan is so short (2 weeks), the equivalent APR is actually 390%. Borrowing $100 for a year with a 15% APR would also cost $15 (not counting compounding interest), but you would have a much longer time to repay the loan.
It’s hard to get a credit card or a loan with a 15% interest rate if you have bad credit, though. Know the all the costs so you can decide if you can handle the expense of a payday loan.
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Payday loans become problematic when you are not able to repay the loan on time (which can difficult when you only have 2 weeks to repay) because extending the loan is expensive: Payday lenders charge you a fee every time you rollover (extend the due date of) your payday loan.
If you take out a payday loan for $100 and roll it over 3 times, assuming you are charged a $15 rollover charge, you end up paying $60 to borrow $100. Adding rollover fees to your payday loan makes it more difficult to repay the payday loan on time, and may result in you paying more in fees than what you initially expected.
The best way to prevent unmanageable payday loans is by repaying your loan on time and only borrowing if you have the means to repay your payday loan.
Payday loans can easily get out of control, so it is best to use them only when necessary.
Payday loans are not recommended for shopping or unnecessary expenses because they are so expensive. It is best to save up for such purchases, spending the $15 that would have gone to fees on your next acquisition instead.
Though payday loans are expensive, you may still find that they are cheaper than other fees and costs associated with running out of cash.
Using your payday loan to avoid costs like those detailed above can be helpful. Compare the costs of a payday loan to the costs of charges you don’t want to pay and decide on which option is cheaper.
Payday loans are expensive, but if you are capable of repaying the loan on time, you can avoid other costs or get the help you need if something unexpected comes up. Get a loan now.