Payday loan companies do give out cash, but at rates that are higher than other types of credit. But these rates are only for short periods, so fees are usually not very high. Payday loans aren't right for everyone, but they can help when you need money quickly.
Do Rates Cost Too Much?
There are a few reasons why payday loan rates are higher than those of other types of credit. First of all, payday loans are short-term loans for small amounts of money. Lenders have to pay for the costs of handling these kinds of transactions. Payday loan companies don't add up interest charges for the next 30 years like mortgage companies do.
Second, there is a higher chance of not paying back a payday loan. People are less likely to pay back these types of loans because there are no credit checks. Everyone has to pay for that cost.
Getting to Know the Numbers
Most people are interested in APRs, which stand for annual percentage rates. If you compare the APRs of mortgages and payday loans, you'll find that the APR for the payday loan is higher. But that is not true.
One thing is that payday loans are kept for a few days, not a year. So you'll never pay that percent. When you get a mortgage or other loan, it takes years to pay back the interest and the main loan amount. So, if you took out a payday loan, you would pay fees equal to about 15% of the loan. With a mortgage, you will probably pay more than 100% in interest charges.
Late Fees Are Less Than Rates
If you look at the fees for being late on some bills or credit cards, they can be much higher than the fee for a cash advance. Fees can also add up quickly if a check doesn't clear the bank or a store.
A cash advance of $100 will have an average finance fee of $15. Most of the time, each NSF check costs around $25 in bank fees. Many times, merchant fees are higher. So, getting a payday loan will cost you, but it will be cheaper than paying late fees. You should also think about how the change will affect your credit report.
At the end of the day, you have to decide if a payday loan is best for you. Payday loan fees can be small compared to other costs if you get service right away and cash quickly.
