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PayDay Loans

Payday loans (also referred to paycheck advance, cash advances or instant loans) are small, short term loans that are intended to cover a borrower's expenses until his/her next payday.  The loans are based on the lender holding the borrower’s personal check for future deposit or having electronic access to the borrower’s bank account to withdraw payment.  

To repay the loan, the borrower can allow the lender to deposit the check into his account, pay by cash or just pay the finance charge to have the loaned rolled over to another pay period.

What are the typical payday loan terms?

Payday loans range from $100 to $1,000 depending on your state legal limits.  The average loan is for about 2 weeks and normally have an annual interest rate (APR) of 400% or more.  Finance charge range from about $15 to $30 to per $100 borrowed.  Two week loans finance charges interest rates range from 390 to 780% APR.  Keep in mind that the shorter the loan, the higher the APRs.

How does a payday loan compare with other cash loans?

Payday loans are very expensive when compared to other cash loans, such as a cash advance on a credit card.  For example, a $300 payday loan will cost $52.50 or $105 if renewed once which equates to a whopping 426% interest.  However, a $300 cash advance on a typical credit card repaid in 1 month will cost $13.99 in finance charge which equates to a 57% interest rate.

What is required to get a payday loan?

All you need to get a payday is an open back account in decent standing, a job, being at least 18 years old, a telephone number and identification.   No credit check is completed and borrowers are not questioned to determine if they can repay the loan.

Where can I get a payday loan?

Payday loans are typically available at payday loan stores, pawn shops, check cashers, by telephone and online.  

What are the advantages with payday loans?

Payday loans are easily accessible for emergencies if you have no other options, provided you have a job, you are at least 18 years old and a bank account in good standing.  There is no credit or background check and you can get the money with hours or even minutes.

What are the disadvantages with payday loans?

Payday loans are for individuals who are in a tight financial bind.  They normally don’t have access to other cash advance methods such as using a credit card.  As a result, payday loans can easily trap borrowers into repeat borrowing because they can’t pay off the initial loan due to the extremely high cost and the short repayment term.  Borrowers on average have 8 to 13 loans per year at a single lender.

Additionally, unpaid loans that involve a check that is not covered by funds in the borrowers account will cause bounced check fees from the lender and the borrower’s bank.  This can add up and will negatively impact the borrower’s credit rating.   Researchers have found that payday loan users are almost twice as likely to file for bankruptcy as borrowers who are turned down for a payday loan.

In some states lenders have sued borrowers who didn’t repay for multiple damages under civil bad check laws.

How does Internet payday lending work?

Internet payday lending adds convenience and security / fraud reduction for the borrower and lender.  Borrowers apply online or via faxed application forms.  Approved loans are direct deposited into the borrower’s bank account and the loans are repaid by being electronically withdrawn on the next payday.   Loans can be automatically renewed every payday by just paying the finance charge.


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