Payday loan rates vary from state to state and lender to lender. These are loans extended by lending companies and financial institutions for a short time period not exceeding a month and have to be repaid with the money from the borrower’s next paycheck or month end salary. There is an interest rate levied on the loan amount in addition to processing fees. This type of borrowing is legal in majority of states in the US but there are a few states where it is banned and illegal.
Rate Of Interest Charged
The rates are very high when compared with regular loans. The interest is the fee that has to be paid for borrowing money from a financial institution. Usually the rate of interest is a percentage of the amount that the borrower borrows. The rate does not seem very high due to small amount sanctions and short term of loan. However, if the fee is simplified into APR or annual percentage rate, the interest rates levied on payday loans can be as high as 300% and more.
In this age of competition, rates on interest among companies are the same but some of them offer extra benefits for the cutting edge. It is commonly observed that people who take payday cash loans pay scant regard to payday loan rates. The main reason being that since the loan amount is small, people do not feel that they are borrowing or taking a loan. They are confident of repaying it with their salary. Moreover the speed of dispersal of loan is its attraction. Thus nobody wants to waste time reading the fine print. After all it is only for a couple of weeks.
Vicious Cycle Of Rollovers
The rates are very dangerous since most choose to ignore it and give it much thought only after they make their presence felt. Whenever a borrower defaults on his repayment, a service charge is levied on his loan. So now he has to pay the principal, interest for an extended time frame, initial processing fees and an added service fee. Thus the total amount due becomes higher than the principal borrowed. Sometimes a rollover initiates an increase in interest rate for the second time period allowed.
Thus it is wise to not default in payday loan repayment. Borrow them only after enquiring about interest rates and if possible comparing them with other offers from various financial institutions. A reputed and experienced company would be ideal for taking a cash advance. To avoid some state laws governing these loans, the interest rate charged are called additional fee. The laws governing lenders online and laws in your state of residence can be different. You need to check out the payday loan rates and laws in the state where the lending company is registered.