What Are Payday Loans

What Are Payday Loans



What Are Payday Loans?
Payday loans are also called cash advances,​ and are relatively small (usually not for amounts exceeding $1,​500),​ short-term loans that do not require credit checks .​
They are available to​ borrowers who are a​ little short on​ cash and are looking to​ bridge the​ gap between pay days .​
They are especially attractive to​ people who have immediate cash needs due to​ certain emergency situations,​ such as​ a​ car repair or​ necessary medication.
Cash is​ given to​ the​ borrower,​ who gives the​ lender a​ post-dated check for the​ loan principal plus a​ loan fee,​ along with any accrued interest .​
the​ maturity date on​ the​ loan will typically be the​ borrower’s next pay day,​ which is​ when the​ lender will process the​ check.
Payday loan lenders are normally found in​ small shops or​ franchises,​ but can also be found at​ large financial institutions who will offer variations of​ payday loans.
If a​ borrower takes out a​ payday loan for $100,​ they will write a​ post-dated personal check for $115,​ which includes the​ principal balance and the​ loan fee .​
the​ borrower will receive $100 in​ cash .​
the​ lender will hold this check for up to​ two weeks,​ at​ which time the​ borrower will be given the​ option to​ either redeem the​ initial check for $115 in​ cash or​ to​ roll-over or​ refinance the​ check by paying a​ fee that will extend the​ loan for another two weeks .​
If the​ borrower does not roll-over the​ loan,​ the​ lender will deposit the​ $115 check .​
If the​ borrower refinances the​ loan three more times,​ they will have to​ pay an​ additional $15 for each roll-over,​ or​ in​ other words,​ they will be paying $60 to​ borrow $100.
Payday loans are a​ sore subject for some,​ and have become a​ source of​ controversy .​
Critics say that these loans are targeted at​ people who do not understand the​ concept of​ the​ time value of​ money,​ and say that payday lenders are no different to​ loan sharks since the​ interest rates are excessively high .​
in​ most cases,​ the​ APR on​ these loans will exceed 250% .​
in​ the​ example above,​ the​ $15 fee is​ equivalent to​ a​ 391% APR.
Though payday loans are a​ convenient source of​ immediate cash for short-term needs,​ it​ goes without saying that potential borrowers should beware of​ making continuous roll-overs,​ and that the​ APRs they pay may be quite a​ bit higher than APRs they might be able to​ find on​ a​ common credit card.




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