Payday loans or payday advances are considered to be short term loans, which are marketed as emergency, or one time funding, for those who find themselves in a temporary financial bind.
The payday loans have extremely high interest rates, but for those who need money now, the interest rate becomes irreverent.
Typically, a borrower may pay $15.00, or more, for every $100.00 borrowed. Normally, a payday loan has to be paid back within two weeks. When calculated, the annual percentage rate (APR) could be as high as 400%, or more. Compare that to a high interest credit card’s interest rate of 30% +/- APR.
Payday loans can be acquired by anyone who has a checking account, and a source of income (wages, retirement, social security, etc…). The payday advance company uses either post dated checks (checks which are dated “in the future”), and/or, the banking information as collateral.
To quote the Center For Responsible Lending (CRL), a non profit, non partisan company, established to be a resource for predatory lending opponents,
According to CRL’s research, borrowers who receive five or more loans a year account for 90 percent of the lenders’ business.
What happens in a lot of instances, is that the borrower cannot pay off the loan in the allotted amount of time. Additional fees are added to the original loan, and things begin to “snowball”, propelling the borrower into possible financial ruin.
If you find yourself facing a financial crisis, before heading down to your local payday loan store, read the facts on the CRL website.
Take time to read their article (under “Payday Lending”), titled “Financial Quicksand – Payday lending sinks borrowers in debt with $4.2 Billion in predatory fees every year”.
Be an informed consumer.
Unfortunately, when faced with a financial crisis, individuals will turn to whatever source is readily available, to gain access to cash.
Although payday loans, or advances, is not a wise choice, often, it’s the easiest, and………….one of the most expensive methods of borrowing.