Payday loans have become increasingly popular for fast cash. Other names for payday loans are cash advance, check advance and post-dated check loans.
Payday loans are easy to get
You need employment, a telephone, a utility bill, a checking account, and a driver’s license for payday loans. The borrower writes a personal check payable to the lender for the amount he wishes to borrow, plus a fee of 10% to 25% of the amount.
The lender holds the check for up to four weeks. Then the borrower redeems the check by paying the face amount or cashing it. If the borrower cannot cover the check, the lender rolls it over for another term by writing another check with another set of fees added to the balance.
Payday loans are an expensive source of cash
Consumers may think payday loans are a cheap and convenient short-term loan. However, they often have difficulty repaying the loan because it leaves little or no money for living expenses. The result is that the borrower pays another round of charges and fees and obtains no additional cash in return.
Because average annual interest rates range from 390% to 871%, payday loans are no bargain. Consider this example:
If the check is written with a face value of $200, there is a 15 percent fee ($30) applied. The borrower receives $170 and the lender receives $30, which translates to an APR of 458 percent if the loan is repaid in two weeks. If it is rolled into a new payday loan, there is an additional $30 fee, the loan is raised to $230, and the APR jumps to 917 percent. In other words, it could cost $60 to borrow $170 for one month.
There’s a better alternative
Instead of resorting to this type of borrowing, contact us or come in and sit down with one of our representatives. We’ll help you evaluate your situation and find a better option that won’t leave you in a vulnerable position.
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