Payday loan companies do provide cash at higher rates than other types of credit programs.
While payday loans are not for every credit situation, they can help during a financial
emergency. Payday loan rates may seem higher than other forms of credit for a couple of
reasons.
First of all, payday loans are for a small amount for a short period. Lenders have to cover
the cost of processing such transactions. But these rates are for short periods, so fees are
often low. Unlike mortgage companies, payday companies don't add up interest charges for
30 years. Secondly, payday loans are at a higher risk of defaulting. Since there are no
credit checks, people are more likely to fail to pay back these types of loans. That cost is
passed onto everyone else.
Most people get excited about APRs, annual percentage rate. If you compared the APRs of
payday loans and mortgages, you will find the payday loan will have the larger number. But,
that is misleading.
For one, payday loans are held for days, not a year. So you never pay that percent. With
mortgages and other types of loans, you take years to pay the interest and principal. So with
a payday loan, on average you would pay 15% of the loan in fees. With a mortgage, more
than likely you will pay over 100% in interest charges.
Taking a look at late fees on some bills or credit cards, they can be significantly higher than
the fee for a cash advance. Fees can also really add up with bank and merchant charges
for bounced checks.
On average, a cash advance of $100 will have a $15 finance fee. Often bank fees average
around $25 for each NSF check. Merchant fees are often higher. So while it will cost you for
a payday loan, they are cheaper than paying late charges. You should also consider the
impact on your credit report.
Example
$100 payday advance with $15 fee= 391% APR;
$100 bounced check with $48 NSF/merchant fees = 1,251% APR;
$100 credit card balance with $26 late fee = 678% APR;
$100 utility bill with $50 late/reconnect fees = 1,304% APR.
In the end, you have to decide if a payday loan is in your best interest. With instant service
and fast cash, payday loan fees can be insignificant compared to other costs.
While payday loans are not for every credit situation, they can help during a financial
emergency. Payday loan rates may seem higher than other forms of credit for a couple of
reasons.
First of all, payday loans are for a small amount for a short period. Lenders have to cover
the cost of processing such transactions. But these rates are for short periods, so fees are
often low. Unlike mortgage companies, payday companies don't add up interest charges for
30 years. Secondly, payday loans are at a higher risk of defaulting. Since there are no
credit checks, people are more likely to fail to pay back these types of loans. That cost is
passed onto everyone else.
Most people get excited about APRs, annual percentage rate. If you compared the APRs of
payday loans and mortgages, you will find the payday loan will have the larger number. But,
that is misleading.
For one, payday loans are held for days, not a year. So you never pay that percent. With
mortgages and other types of loans, you take years to pay the interest and principal. So with
a payday loan, on average you would pay 15% of the loan in fees. With a mortgage, more
than likely you will pay over 100% in interest charges.
Taking a look at late fees on some bills or credit cards, they can be significantly higher than
the fee for a cash advance. Fees can also really add up with bank and merchant charges
for bounced checks.
On average, a cash advance of $100 will have a $15 finance fee. Often bank fees average
around $25 for each NSF check. Merchant fees are often higher. So while it will cost you for
a payday loan, they are cheaper than paying late charges. You should also consider the
impact on your credit report.
Example
$100 payday advance with $15 fee= 391% APR;
$100 bounced check with $48 NSF/merchant fees = 1,251% APR;
$100 credit card balance with $26 late fee = 678% APR;
$100 utility bill with $50 late/reconnect fees = 1,304% APR.
In the end, you have to decide if a payday loan is in your best interest. With instant service
and fast cash, payday loan fees can be insignificant compared to other costs.
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