An Introduction to Payday Loans
There are times when one may need extra financial aid for urgent cash needs that may or may not be resolved by savings alone. For such situations, instant cash loans can provide relief in the form of a solution to financial concerns. These instant cash loans are called Payday Loans.
Payday loans are extremely expensive short-term cash advances or loans based on the borrower’s personal check held for future deposit. Borrowers write a personal check for the amount they intend to borrow plus the loan’s finance charge, and receive cash. Payday loans can also be based on electronic access to the borrower’s bank account, in which case, the borrower signs over electronic access to their bank accounts in order to receive and repay payday cash advances or loans.
The lenders hold the checks until the next payday when the borrower must provide payment in a lump sum consisting of the amount loaned plus the finance charge. For the loan to be paid, borrowers can redeem the check by paying the lump sum with cash, or allowing the check to be deposited at the bank. In cases where it is not possible to pay back the amount loaned, the borrower can just pay the finance charge for the loan to be rolled over for another pay period.
Depending on state legal maximums, payday loans can range in size from $100 to $1,000, with two-weeks being the average loan term. These loans usually cost 400% annual interest (APR) or more. For a loan of $100, the finance charge ranges from $15 to $30. These finance charges result in interest rates starting from 390 to 780% annual interest or APR for two-week loans, with shorter term loans having even higher APRs.
Compared with other cash loans, payday loans are extremely expensive. For example, a $300 cash advance on the average credit card, repaid in a month, would typically cost $13.99 in finance charge, and have an annual interest rate of almost 57%. A payday loan, by comparison, with a finance charge of $17.50 per $100 for the same $300 cash advance would cost a total of $105 if renewed one time or 426% APR.
Payday loans can be acquired so long as the consumer has an open bank account in relatively good standing, identification, and a stable source of income. Unlike with other types of loans, lenders neither perform full credit checks nor ask questions to establish if a borrower can manage to repay the loan. Interested consumers can check out payday loan stores, check cashers, and pawn shops. Some rent-to-own companies also offer payday loans. With today’s modern conveniences, loans are now also advertised through toll-free phone numbers, as well as over the World Wide Web.