Payday Loans & Interest Rates – Understanding How The Interest Rates Work
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There are a great many situations where a payday loan can definitely help someone out. While many may be hesitant to turn towards payday loans due to the negative connotations about them, others may not have a choice. Fortunately there is a time and a place where payday loans are beneficial, and understanding this is essential to ensuring that you make the best financial decision in your situation.
Understand Payday Loans
A payday loan is basically a cash advance from the time you request it, until your next pay check. This can mean the difference between fixing a car and having a ride to work, or losing your job due to no transportation. Payday loans are great for people who have very little credit, or who simply have bad credit due to previous financial mishaps because the loans do not check your financial history.
To secure a payday loan you will only need a job, and proof that you are receiving regular paychecks (usually via a check stub or bank deposit printout). Having your proper identification with you during the time of requesting the loan is a given, however sometimes a payday loan may require you to have direct deposit for your paychecks, others may not. Each institution will vary slightly on certain small aspects of what you need to get the loan, and how much you are allowed to borrow, but the basics remain the same.
Payday Loan Interest Rates
The biggest issue with payday loans is their interest rates. These are incredibly high and often make it a bad idea to even take out a loan in the first place. There are extenuating circumstances where a payday loan can actually save someone money, as in preventing them from losing their job, so judging your own situation and weighing the risks of taking out a payday loan is essential.
When looking at payday loans, you need to understand how the fees are calculated. These loans will have a set amount that is charged per $100, which allows you to quickly scale up how much you will have to be paid back. If a payday loan institution charges $20 for every $100 lent for two weeks, then you will have to simply pay back $120 for your loan. Now, if you are taking out $700 for two weeks, you will then have to pay back $840. While this may not seem like much, most lenders for payday loans will charge anywhere from $20-$30 per $100 on your payday loan. This means that an annual percentage rate can be well over 600%!
If you think about it, getting a cash advance for a certain amount on your credit card will incur fees as well, however if you advance $400, and pay $20 in fees for the month, you are getting a four week extension for the money at a significantly reduced price.
Considering payday loans is not a bad thing; however they are most definitely not long term solutions for money loans!
Author Bio
Rachel is a finance graduate and pursuing her masters in accountancy from a leading university in Bristol. She reviews pay day loan companies like Full Pocket for their service and writes resourceful blogs helping others to understand the in and out of attaining a Pay Day Loan from lenders like Full Pocket
Category: Loans, Short Term Loan
