When your income is too low to cover all of your expenses, payday loans can be a quick and easy fix. But they also carry very high interest rates that can add up to a serious debt problem.
Fortunately, many states have implemented caps on payday loan interest rates. They are also working on strengthening lending laws to protect consumers from the dangers of payday lenders.
Payday loans are a convenient way to borrow short-term money, but they are expensive and can cause long-term problems. Interest rates are astronomical and can add up over time.
Many payday lenders charge a percentage or dollar amount per $100 borrowed, and the exact amount varies by state law. A fee of $15 per $100 is common, and that equates to an annual percentage rate (APR) of almost 400% for a two-week loan.
These high fees can lead to payday loan debt traps, where borrowers renew their loans so many times they end up paying more in fees than the original amount. It’s a vicious cycle that can result in huge fees and can even leave you in serious financial trouble.
Payday loan interest rates are usually quite a bit higher than what you can expect from your local bank or credit union. They can be a useful source of cash when you need it most, but be warned: The cost of the money you borrow could be more than you can afford to repay.
The best way to figure out the cost of your payday loan is to look at the total amount you borrow, add up all of your fees and take a hard look at the fine print. If you have a good credit score and can make the payments, you may qualify for a loan with a reasonable interest rate that will help you get on the path to financial independence. A quick call to your local bank or credit union should be able to point you in the right direction.
Hopefully, this will help you make the smartest decision of your life and save yourself some money in the process.
Time to repay
Payday loans are typically short-term, and many borrowers can only afford to repay the loan in their next pay check. In fact, a recent survey by the Consumer Financial Protection Bureau found that about one-fifth of all payday loan borrowers were delinquent on their loans. In short, the best way to avoid this financial disaster is to have a budget and stick to it. The CFPB also recommended that all but the most cash strapped borrowers consider seeking out a responsible lender in the first place. The best lenders have transparent lending policies and a well-written agreement in place to make sure you don’t end up in debt.
A payday loan, also known as a cash advance, is a small-loan product that can offer quick cash with minimal documentation. They are often a last resort for low credit score and unbanked consumers who need a short-term loan that they can repay quickly and easily.
The interest rate on a payday loan can be significantly higher than a typical credit card balance. According to the Consumer Financial Protection Bureau, a $300 loan over 14 days can carry an annualized rate of 391 per cent.
Some states have banned payday loans entirely or imposed interest rate caps that defeat the lender’s business model. Some have a cap on the maximum number of loans a borrower can have and rules on repeat borrowing, waiting periods between loans, and loan limits.
Check out the state pages to find out whether payday lending is legal and the payday loan laws in your state. Each page gives the key cost of payday loans under state law and lists a citation for any small loan rate caps or usury laws that apply.