Basically, payday loans are short-term credit option that is often due on your next payday. Most of these loans are in the range of $100-$1000, which will be given to you when you have difficulties with cash inflows.
Requirements to Get a Payday Loan
The requirements are pretty basic. First, you must have a regular job with a regular income. Your annual salary has to be at least $10 000, and a month – at least $3000. This is a huge advantage of taking payday loans than bigger companies like banks: banks usually offer loans only to people with stable long-term employment history. Usually, they refuse those who are employed only during the last 6 months.
Calculating Payday Loan Fees
One more advantage of payday loans is the low-interest rate – this is not something to be underestimated. If you want to consolidate your debts, you should know that regular banks usually charge 35% or even more per year! A payday loan will cost you only 8-16% per annum. Remember that the interest rate is calculated for a whole year, but the average period of repayment is 33 days only.
You need to know about the fees you will pay for the loan. Usually, loan providers ask for applying fees of $ 55-60. This is a one-time fee that is charged when you apply for the loan. The maximum risk for annual interest rates is 300 %. This fee includes monthly interest and interest charges on overdue payments. You need to understand that this percentage includes only the interest rate, no fees necessary to pay the company, such as an application fee.
Calculating Payday Loan Interest
The best way to calculate interest charges is to know how much you will spend on them. This will be nonsense when accounting for anything less than a couple of hundred dollars because it will be more expensive to calculate than a flat thirty or forty dollars for the maximum possibility. Plus, this depends on the maximum payment and can turn out differently every month. Let me help you with an example of a bank loan of three hundred dollars in one month.
The loan company will expect a total of 25 dollars. However, I will pay an application fee. There is no charge for the application fee for one month. Therefore, after two months, you will have to pay $ 38.50 in interest and fees.
Do Payday Loans Have High Fees and High-interest Rates?
You get what you pay for. A Payday Loan is a small-dollar, short-term (usually 3-month) loan that carries an Annual Percentage Rate (APR) of over 100%. The industry offers this product because consumers use it. Anyone who needs a short-term cash source and has no other options is probably considering using a payday loan.
What do Payday Lenders Base Their Fees on?
The fees and interest on a loan are tied directly to the amount borrowed. The larger the loan amount, the higher the fees and interest will be. That’sThat’s why, regardless of the fee or APR quoted by a lender, it is important that you only take out as much money as you need.
Payday Loan Regulations
Regulations vary by state and sometimes even by county. Most states have laws against foreclosure under certain conditions, such as the payment period of the loan. If a creditor proposes a different contract to change these rules on loan, it is called “predatory lending.” Predatory lending is illegal; the loan company must follow the law. Also, you can access government services to help you avoid being taken advantage of.
How do you Calculate the True Annual Percentage Rate on a Payday Loan?
The APR on a payday loan is simple to understand and compares one loan’s annual rate based on the amount borrowed and term. This will reflect the true cost of borrowing that money, and without a doubt, will be higher than the stated interest rate or “finance charge.” This works by multiplying the loan amount (usually $ 400) times the number of weekly payments made on the loan (usually 12). This gives you approximately how much you will need to pay in total overtime, which results in the true cost of borrowing that money. Then you divide this figure by 12, so you’ll have your monthly payment amount.
What are the Disadvantages of Payday Loans?
Most payday loans are from payday loan stores, not banks, credit unions, or other traditional lenders. Because stores offer this service as a cash-generating product, they tend to charge higher fees. Stores typically charge more in fees and interest than a traditional lender would for the same amount and duration of a loan.