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Payday loan fees may vary from one lender to the next, but these fees should always be carefully examined before you enter into a loan agreement. Although payday loans may seem appealing because they can be issued very quickly and with only minimal information required on the loan application, the fees associated with these loan can considerably increase the borrower's debt.
A payday loan is generally based on the applicant's income which helps to ensure the borrower will be able to repay the loan on the next payday. However, most lenders have additional fees associated with these loans. These fees are typically based on the amount which is borrowed. There may be application and processing fees as well as interest and penalties, which are applied if the borrower does not repay the loan in a timely manner.
Carefully examining loan interest rates is important when considering payday loans. This is an important consideration whether the borrower is comparing several payday loans or whether he is comparing payday loans to more traditional types of loans.
When taking out payday loans, loan interest rates are typically presented in the form of a fee which must be paid for the amount of money which is borrowed. Typically fees range from $15 to $30 for every $100 borrowed. Although these fees seem minimal when considering the relatively short repayment period, the interest may translate to an annual percentage rate in excess of 390 percent. This clearly makes this type of loan ideal for the lender because they have a return on the loan which is proportionally large, but borrowers must determine whether the need for the loan makes this type of interest rate worthwhile.
The annual interest rate associated with traditional loans is often considerably lower. However, the repayment period is also longer. To compare the two types of loans, the borrower should determine how much he will pay in interest and fees over the course of the loan to determine which option is fiscally more appealing.
The term payday loan is derived from the typical pay period associated with this type of loan. Unlike traditional payday loans, which have a repayment period of months or years, a payday loan is usually repaid in full within a couple of weeks. Most payday lenders stipulate the loan must be repaid on the borrower's next payday. In fact, many lenders will seek authorization from the borrower and withdraw the necessary funds from his bank account when he receives his next paycheck.
Although the process of automatically withdrawing the funds on the borrower's next payday is quite common, it is rare that a lender will require repayment on the next payday when it occurs less than seven days after the loan application is approved. However, the funds will generally be withdrawn automatically on the second payday after the loan is approved.
The loan fees associated with payday loans and personal loans may seem considerably different, but these fees should not generally be used to decide between taking out a payday loan or a personal loan. The borrower should instead consider these fees along with other aspects of the loan, such as the total loan amount, the repayment period, the interest rate and the application process. There are strict limits placed on the maximum loan amount which also caps the fees associated with these loans.
The loan fees associated with personal loans will typically be higher than the fees associated with payday loans, but the borrower also typically has more options available to him. These options include the ability to borrow considerably more money, a longer repayment period and more favorable interest rates.
There are a number of differences between payday loans and traditional personal loans. However, perhaps the most significant differences between these two types of loans include the type of information required during the application process. This is because payday loans are granted based on the applicants income while traditional personal loans factor in a variety of other factors such as credit history and assets. Therefore, traditional loan applications are significantly more detailed than payday loan applications. A payday loan application may only include proof of identification and income as well as a recent bank statement. Based on this information, the lender can determine whether or not the applicant is capable of repaying the loan based on his income and can typically obtain authorization to withdraw the funds necessary to repay the loan in full on the applicant's next payday.
The repayment period for payday loans and traditional personal loans are also typically significantly different. Most payday loans specify the loan must be repaid in full within the second payday after the loan is approved. However, traditional personal loans usually have a significantly longer repayment period which may be upwards of one year. Some traditional loans may even have repayment periods of as long as 30 years.
Borrowers may have a number of options available to them when they take out a payday advance loan. These options will vary from lender to lender. There are some options which are more common than others, however. The most popular repayment option for a payday advance loan is to have the lender withdraw the funds directly on the next payday. In most cases, the lender will not withdraw the funds on the first payday after the loan is approved if this payday occurs within seven days of the loan approval. In these cases, the lender will withdraw the funds from the bank account on the following payday instead.
Borrowers may also have the option to repay a payday advance loan in a more traditional manner. This may include repaying the loan via a personal check or possibly even a credit card. However, these loans must typically still be repaid rather quickly. The general timeframe for repayment may depend on the payment schedule created by the borrower's employer.
The interest rate associated with a pay day loan is typically not the most appealing aspect of this type of loan. Borrowers in need of a pay day loan may be in need of a loan which can be obtained quickly and repaid in a short period of time. This type of loan is also ideal for borrowers with a poor credit history because the loan approval is based on income rather than credit history.
When obtaining a pay day loan, the borrower typically pays a fee of approximately $15 to $30 for each $100 they borrow. Translating these fees to an annual percentage rate would result in a rate of 390 percent to 780 percent, making it clear these terms are not ideal from a financial standpoint. However, considering the short loan period, the interest the borrower pays is not a substantial amount of money which explains why borrowers are not intimidated by these interest rates.
Repaying a check advance loan in a timely manner is very important. This is because these loans typically have high fees and interest rates associated with them. Therefore failure to repay the loan can not only have an adverse effect on the borrower's credit history, but can also result in greater debt for the borrower. However, in most cases repaying the check advance is an automatic process.
Most payday loans are based on the borrower's income and the loan agreement specifies the loan must be repaid the next time the borrower is paid by his employer. The borrower also typically authorizes the lender to withdraw the funds from his bank account as soon as they become available. However, these terms may vary from one lender to the next. For example, some lenders may make provisions which specify the loan does not have to be repaid on the next payday if the borrower is scheduled to be paid within seven days of the loan approval. In these cases, the loan may be repaid on the subsequent payday.
A cash payday advance can be used to repay another payday loan but it may ultimately be a costly solution for the borrower. This is because these loans typically have high interest rates and fees associated with them. Taking out a second payday loan to repay the first one will eliminate the original debt, but the borrower may now face an even higher fee especially if he was required to take out a second loan large enough to repay the original debt plus the fees and interest associated with the debt.
Repaying a cash payday advance with another payday loan may also not be a good idea because some cash advance lenders may have restrictions on this practice. In particular, a lender may decline a payday loan application if the applicant already has more than one loan which has not been fully repaid.
|Jennifer Mathes, Ph.D.|