What Are Rates for a Payday Loan?
Payday loans are short-term, unsecured personal loans usually due on the borrower’s next payday. They seem like an excellent way to get the money you need quickly, but most of the time, their hidden fees and high-interest rates can trap you in a cycle of debt that is hard to get out of.
Depending on the state in which you live, you could end up paying an annual percentage rate of interest of anywhere from 160% to 660% or even higher.
In addition, the risk of not paying back a payday loan is considerable. Therefore, it may be in your best interest to consider alternative funding options to overcome a temporary hiccup in your finances.
What kind of costs and fees comes with getting a payday loan?
Payday loans usually have fees that are either a percentage or a flat dollar amount per $100 borrowed.
This fee could be anywhere from $15 to $35 for every $200 you borrow, depending on the laws in your state and the most you are allowed to borrow under those laws.
People usually charge $30 for every $100. This works out to an annual rate of over 500% for a loan that lasts just two weeks.
If you needed to borrow $400 before your next paycheck and had to pay $20 for every $200 you borrowed, you would have to pay back $445. This is assuming that the rate was $20 per $200.
What other fees and costs to consider when getting a payday loan?
If you can’t pay back the loan when it’s due and rollovers are legal in your state, the payday lender may agree to extend the due date and let you pay only the unpaid fees.
After that, you’ll have to pay another fee on top of the original debt, which you’ll still have to pay in full. Using the same example, if you paid a $50 price to renew or roll over your loan, you would still have to pay back the original loan amount of $400 plus another $50 when the extension period was over. Fees will add $80 to the cost of a $400 loan for just four weeks.
Payday loan lenders may be required by the laws of some states to give borrowers more time to pay back their loans if they are having trouble doing so.
Each state has its rules about this, so if you want to use a repayment plan, you may or may not have to pay a fee on your form.
If your state requires lenders to give borrowers the option of a more extended repayment plan, you might be able to get more time to pay back your loan without having to pay any extra fees or costs. Because of this, you won’t need to get another loan.
This means you won’t have to pay any more expenses and won’t fall behind on your payments any further.
Depending on the laws in your state, if you don’t pay back the loan by the due date, the lender may charge you a late fee or a fee for a check that was returned as unpaid.
If your check or electronic authorization is returned unpaid because you don’t have enough money in your account, your bank or credit union may also charge you an “NSF” fee, which stands for “non-sufficient funds.”
We use prepaid debit cards.
If you put the money from your loan on one of these cards, there is a chance that you will have to pay extra fees.
There may be a fee to add money to the card, a price to check your balance or to call customer service, a fee every time you use the card, and a payment every so often.
Before taking out a loan, you should read the loan agreement carefully to know all the fees and costs.
What are the dangers of getting a payday loan?
Despite their utility for obtaining cash quickly, payday loans come with numerous inherent hazards.
The cost of borrowing is pretty high.
Payday loans can ruin your financial health and credit score with incredibly high-interest rates and hidden costs. Zhou says, “Payday loans have high-interest rates, but the fine print is the biggest risk.”
There may be adjustment costs, required subscription charges, or early repayment fees hidden in the acceptable language, all of which have the potential to pile up quickly.
As an illustration, a two-week payday loan costs $380, but the average client pays $530 in fees for the privilege.
Risk of default.
According to Zhou, “the greatest risk associated with payday loans is when they transform from a temporary solution to a long-term burden on your financial situation.
” Fortunately, only 15% of those who take out payday loans find themselves in a situation where they cannot repay the debt.
Rollover costs are excessively high.
If you do not have a plan to pay off your payday loan in full by the due date, you will be required to roll over your loan.
You will be responsible for the principal balance and any additional fees and interest accrued since the original loan was rolled over.
This vicious cycle could put you in a position where you have to pay hefty interest rates on your debts in the future.
What are other options aside from payday loans?
You might not be able to get a traditional bank loan for the cash you need quickly, but some of these ways to make it to your next paycheck might work better than a payday loan.
Use a credit card.
If your credit card isn’t already at its limit, you could use it to pay for things. Your interest rate will probably be lower than a payday loan, and you’ll have 30 days to pay off the credit card balance before paying interest.
A credit card could be cheaper if you can pay it back when you get paid again.
Apply for a personal loan online.
Online lenders offer loans of up to $2,000 for people with a FICO credit score. The estimated APR ranges between 9.99 and 36.99 percent.
You can check your loan rates online with lenders without hurting your credit score. Once approved, the money can be sent to you in one business day.
Think about a credit union.
Credit unions offer loans that are an alternative to payday loans. These loans, called PALs, let you borrow between $300 and $2,000 for one to six months. The most the APR can go up to is 30%. If you need money right away, this isn’t the best way to get it.
Ask people you know.
Friends and family may not always be able to give you money, but they may be able to help you in other ways that will help you save money.
For example, they could let you do your laundry at their house instead of the laundromat, saving you money; or they could make you dinner and give you enough leftovers to last until your next paycheck.
Get extra money.
There are a few easy ways to make extra money. You can make some extra money by selling things you don’t need.
You could try selling clothes online or at second-hand stores. You could also rent a room on Airbnb, sell unused gift cards for cash, or cash in credit card rewards points.
Ask your boss for money ahead of time.
Check with your boss to see if you can get some money from your next paycheck early. Your human resources or payroll department might be able to help.
Ask for leniency or wait to pay.
If you owe money on some bills, you should call each creditor and ask for an extension on your debt due date till you have the money to repay the loan.
Numerous companies will agree or find ways to let you pay your bills in installments. It’s a good idea to look for places where you can cut back or put off payments until your next paycheck.
When used in the right way, payday loans can be helpful. A payday loan could be a good choice if you have a good track record with money but just need a little extra cash to pay for something.
But keep in mind that payday loans come with risks. If you’re unsure you can pay back the loan, it could hurt your credit score or even land you in court.
Before you get a payday loan, talk to banks and credit unions about the loans they offer and find the best rate.
Most of the time, the risks of payday loans are worse than the benefits, so make sure you understand how they work before you apply.