subject: Understanding Payday Loan Interest Rates [print this page] If you are familiar with payday loans, you will know that they are great for cash you might need quickly in times of emergency. You might also know that you pay higher interest rates than other traditional loans.
With so many people in need of money for urgent expenses such as paying utility bills on time, car repairs so they can get to work, or medical expenses, these loans are a lifesaver. And many people are not even able to qualify for traditional loans because of how poor the economy is right now.
But what most people don't understand is why the interest rates are so high, and why so many critics are saying that these loans are such a bad thing because of them. There are other types of loans that have interest too, that is the way the financial industry makes its money.
That is why people who are in the market for a loan look at the interest rates when shopping around. Payday loans are viewed as exorbitant. But are they really?
If you look a bit closer to the way these loans are structured, you will see that it is not fair to compare the way the fees are charged by payday lenders versus banks. One can't really figure the charges in the same way as a traditional APR. They are not the same thing.
Most payday lenders charge a fixed fee for every certain amount borrowed. For instance, $10-$15 for every $100 borrowed. If you compute the APR then the total interest would be huge. It is simply not fair, or logical, to compute the APR because the very structure of payday loans are different than traditional loans.
The very first thing that should be considered is that payday loans are short term. They are not for 12, 24 or 36 months like traditional loans. That means two things - the borrower can take get his money in a shorter amount of time. This is a good thing if a person is in desperate need for cash.
Second thing, it can be viewed as restrictive because the person has to return the money, and the charges, within a very short time. If payday loans were for long terms, at the current rates offered, then of course the interest would be astronomical!
Aren't there always at least two sides to every story? That is why many people misconstrue payday loans as being "bad" or "scams". If you can step back and take a look at the concept, you will see that payday loans are providing a service for the average citizen. Payday loans help people solve their temporary cash problems.
Anyone who is at least 18 years of age and a resident or citizen of the United States can take a payday loan. These loans can be taken over the Internet as well, as there are hundreds of lenders who offer loans online.
Online lenders are fast but sometimes people prefer face to face business. In that case, there are a lot of local lenders out there, one just needs to look. One does need to be reminded that these loans are also for small amounts. It simply is not possible, nor practical, to get a payday loan for more than $1500 which is the cap for some states.
When a person needs a bigger loan, for longer, they do need to find a traditional lender to assist them with that need. There are very many people who practice financial irresponsibility and who do find themselves in trouble with payday loans.
Most people are in debt and spend money they don't have all the time. People sign their names to contracts they don't read or understand and then they find themselves slapped with fees and collectors. Be a smart borrower and keep these things in mind and you will find that payday loans are easy, convenient and offer a service that your bank doesn't.
by: Jack Landry
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