subject: Payday Loans Made Easy To Understand [print this page] Here we will discuss all the nitty gritty details for you to understand exactly what they are and how they work. This way, if you ever need to avail one, you will be an informed consumer.
Payday loans are short term loans, typically only lasting two weeks, that are given to a consumer when they give the lender a personal check or a pre-authorized bank draft for future repayment of the loan.
A borrower will write the check for the loan amount borrowed, plus the interest and any additional fees with a post date. This is how lenders collect "collateral" on your payday loan.
Instead of putting up your car, or another valuable, your check ensures the lender that you will pay the loan back. Lenders hold the checks until the next payday when loans and the finance charge must be paid in one lump sum.
To pay a loan, borrowers can redeem the check by paying the loan with cash, allow the check to be deposited at the bank, or just pay the finance charge to roll the loan over for another pay period.
Payday loans range in size from $100 to $1,500, depending on legal state maximums. Loans cost on average 470% annual interest (APR). The finance charge ranges from $15 to $30 to borrow $100. For two-week loans, these finance charges result in interest rates from 390 to 780% APR. Shorter term loans can have even higher APRs.
It is really quite simple to apply for a payday loan. All a consumer needs to avail a payday loan is a bank account in fairly good standing, a steady source of income and personal identification.
The borrower must be a legal citizen as well. Most lenders do not conduct a credit inquiry or ask multiple questions to determine if a borrower can afford to repay the loan.
Payday loans are offered by payday loan stores, check casher, and pawn shops. Some rent-to-own companies also make payday loans. It is advised however, that you go with a legitimate payday loan lender and not a company that only does loans like this as a secondary business.
There are loans that can be availed via toll free telephone numbers and over the Internet. Online payday loans are even easier to avail and very convenient.
However, you must be sure that the lender is legitimate before going through with an online lender.
Check to see where they are located; stay away from PO Boxes. Lenders are prohibited from charging more than 36 percent annual interest including fees; taking a check, car title, or tax refund to secure loans; and using mandatory arbitration clauses in contracts.
Payday loans can trap consumers in repeat borrowing cycles due to the extreme high cost to borrow, the very short repayment term, and the consequences of failing to make good on the check used to secure the loan.
The way to avoid this is to simply understand the loan you are getting and ensure that you can pay it back. If you do not have the money in your next paycheck to pay this loan back, then you should not be getting a loan in the first place.
It is good to know that this can be a risky business if you are not financial responsible for yourself. Failure to repay a loan leads to bounced check fees from the lender and the borrower's bank.
Returned check cause negative credit ratings. A consumer could lose their bank account completely if too many bad checks go through in a certain amount of time.
Banks can see the trend that some people have of bouncing checks and debits so they can get what they need right then. Basing loans on personal checks leads some lenders to using coercive collection tactics.
Some lenders threaten criminal penalties for failing to make good on checks. In some states lenders sue for multiple damages under civil bad check laws. So, you can see that payday loans are serious loans and you must be a responsible borrower.
