Are you one of the thousands of consumers that find yourself living from paycheck to paycheck, without a budget to adhere to? For those consumers that have not established an emergency fund, tapped out all of their credit resources and are simply broke, payday loans may seem like the only solution when it comes to facing emergency or unexpected expenses.
There are many names for payday loans, cash advance loans and check advance loans. Regardless of the name these are some of the most expensive financial services that are available to consumers. When you are apply for a payday loan you are required to sign a post dated check to the institution that is lending the funds. At this time, the check is held in safekeeping in case the debtor defaults on the payment. If the payment is not made on time there can be daily interest charges of up to forty percent.
Many experts have theorized about the use of the post dated check as in most cases there are no funds within the account to cover the amount that has been borrowed. After all, the client is obtaining a payday loan as they are out of options until they receive their next pay check.
Payday loans are one of the highest interest financial services available to consumers. Regardless of your credit rating – payday loans are available to any consumer that has a checking account, a recent record of employment and a statement from their bank account. Perhaps the most expensive part of a payday loan is the fact that many consumers are unable to repay the loan in full at the time that the funds become due. Many lenders allow these accounts to be rolled-over which can lead to increased interest charges.
In fact, many customers are unaware of the high interest rates and how much payday loans are really costing them. It can be easy to accumulate fees and interest charges, especially if the loan is not repaid on the day that was agreed upon. This can leave the borrower overwhelmed with charges that are substantially higher than the amount that was originally borrowed.
The average rate of a payday loan finance charge comes in at $20.00 per $100.00 borrowed. Borrowing $500.00 is more than likely going to cost you upwards of $600.00 once the final payments have been made towards the loan – if the payments have been received on time and in full.
There is a phenomenon referred to as the payday loan trap, in which consumers that use payday loans are often drawn back into the payday loan cycle, which can siphon thousands of dollars in finance charges away from the consumer each year.
The expensive dangers of payday loans can be seen in the fact that a comparable interest rate, or annual percentage rate would come in between three-hundred and one-thousand percent! This is unheard of in the financial world – in every institution but payday loans.