| Introduction in payday loans
Payday loans are relatively small, short-term, unsecured, consumer loans. Consumers apply for payday loans through the
Internet, with loans ranging from $100-$500. If approved, the loan amount is then wired overnight into the applicant’s
checking account.
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The term on payday loans typically range from 4 to 18 days, coinciding with
the applicant’s next payday. Some lenders charge a flat fee regardless
of the length of the payday loan, while some lenders vary the interest
rate depending on the length of the payday loans. Most payday loans
lenders and affiliates of payday loan lenders offer clients the
option of “rolling over” a loan, meaning that the loan is extended
to the next payday and the subsequent fees are doubled. The larger
and more reputable online lenders will allow a client to roll over
payday loans no more than one to two times.
Currently, fees charged on payday loans online range from $15 to $30 on each $100 advanced. Stated another way, annual
percentage rates for payday loans generally range between 400 and 1000 APR. However, the cost of getting payday loans should
be viewed as a service charge. According to market research, banks and merchants charge an average non-sufficient funds fee of
$24 per check. Credit card companies impose an average late fee of $26, while auto finance companies charge $23. In contrast,
the average finance charge on a payday loan is about $18 per $100 borrowed.
Payday loans are an alternative to bouncing checks, pawning personal property, or borrowing money from family and friends.
Consumers may also use payday loans to avoid late-payment penalties and negative marks on credit ratings. Ideally, individuals
have money saved from each paycheck to prepare for financial shortfalls or unexpected expenses. Realistically, many people
have a periodic need for short-term financial assistance. When used responsibly, payday loans can provide valuable assistance
to these short-term cash needs. However, you should evaluate the costs and benefits of all alternatives before borrowing.
Other forms of short-term credit that may be less expensive include a loan from another institution, a credit card cash
advance, an account with overdraft protection, or a salary advance.
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