A payday loan, which might also be called a “cash advance loan” or “check advance loan” is a short-term loan for a small amount, usually ranging from $100 to $1,500. Typically people take out these loans to fund expenses that are due and need to be paid off before their next paycheck arrives. In that situation, people borrow just enough money to get through to their next payday, which is when the loan is due.
Payday loan businesses may take postdated checks as their collateral in case you are unable to pay back what you borrowed. This means that the borrowers need to write a post-dated personal check in the amount they want to borrow, in addition to a fee for borrowing the cash. The lender immediately advances the customer funds, but holds onto the check and cashes it on the agreed upon date, which is usually on the borrower’s next payday.
Is a payday loan for you?
Most borrowers using payday loans have bad credit and low incomes. Many don’t have access to credit cards and take out these loans to avoid costly bounced checks, overdraft protection fees, and late bill payment penalties.
You can get this type of loan from a business that is not a bank, usually from a loan store. Generally these businesses charge a large fee for the loan, making the interest rate on the loan very high. The cost of the loan may range from $10 to $30 for every $100 borrowed. If the fee was $18 per $100 for seven days, this is equivalent to a rate of more than 900% on an annualized basis. By comparison, APRs on credit cards can range from about 12% – 30%.
Since payday loans charge a very high interest rate, it is advisable to see if you have other alternatives before taking out a payday loan. Increase your income by finding another job or cut down unnecessary expenses to free up your cash.
Read here on how to get a payday loan.