The True Cost Of Paying For An Online Payday Loan

There has been quite a bit of hype lately about the payday loan industry

. Labeled as "predatory", these types of lenders have been accused of irresponsibly overcharging their borrowers with higher than usual interest rates and costly fees. Some say these types of short-term loans take advantage of the borrower because fees are charged in a lump sum and are higher than the average long-term loan. But did you know that the banking industry collected nearly $30 billion in overdraft fees in 2011 alone?

Banks charge on average $34 every time a customer has an overdraft on their account. If the account is not brought current in a matter of days, the bank may then charge another fee for every day that the balance is not paid in full. Even though the customer may be trying to catch up, they are sinking into a deeper financial hole because of the charges being tacked on daily to their account.

Credit card companies charge as much as $30 in late fees every month a payment is late. These charges may amount to more than the minimum payment, causing the balance on the card to skyrocket and prevent the consumer from ever getting it paid off. Taking out a cash advance on a credit card is even more costly because of the fees attached. The interest rate is much higher and the interest fees accrued are the last to be paid off.

When a consumer needs fast cash, they may want to turn to a payday or cash advance loan lender to get an immediate paycheck loan. Payday lenders ask that borrowers have a steady job, direct deposit, and minimum annual income. These requirements promote responsible borrowing and lending on the part of both parties in an effort to prevent the borrower from taking out a loan they cannot pay back. Fees are attached to the loan amount and are paid back in one lump sum. Due to the fact that interest is calculated on a short-term basis the rates look significantly higher than a long-term loan, but in reality, they may be less in the long-run because the loan is meant to be paid off quickly. An example would be a loan in the amount of $175.00. Depending on what state the consumer lives in, the fees would range from $17.50 - $26.50. The fees would be attached to the loan amount and paid off with the borrower's next paycheck. Compare this to a credit card balance of the same amount. If the borrower pays only the minimum payment (example: $10) it would take 21 months to pay off and cost nearly $30 in interest.

Taking this into consideration, a consumer who needs quick cash as a financial solution may want to consider a payday loan or cash advance loan. They can get the money they need for their short-term money needs but have it completely paid off with their next paycheck. No monthly payments or long-term interest accrued.

by: Melissa Daley

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