When people talk about the high interest rates they’re paying, sometimes more than 29%, most often they’re referring to Credit Card interest rates. At a 29% interest rate, borrowers will wind up paying up to one third again over the original amount they charged if they only make the minimum monthly payments.
Before borrowing money, such as payday loans, or charging items to a credit card at high interest rates, a person needs to consider the consequences. If you don’t quickly pay off high interest rate loans they’ll cost you more money the longer they remain outstanding. That is the goal of the lender. Payday loans are contracted for no more than 30 days, typically, which will keep the amount paid in interest and fees reasonable. There are two main considerations before applying for a payday loan or cash advance loan.
You need to compare the effective annual rate, also known as the EAR, of several lenders to get the best loan available. Banks and conventional lenders advertise payday loans have a 300 or higher percentage rate. They make these egregious claims by converting the EAR into their method known as the APR (Annual Percentage Rate), or annual percentage rate. This is an absurd comparison. Payday loans and cash advance loans are never taken out and paid back on a yearly (annual) repayment schedule. All payday loans and / or cash advance loans clearly explain what the fees and interest rate is that you’ll pay back, usually in a two week or at most a 30 day term. The full disclosure of these fees and interest rates are mandated by each State these centers operate in.
The second thing you need to know is a payday loan can be a smart decision for paying bills when an unexpected emergency arises. Although the interest rates are high on payday loans they are still reasonable considering you don’t have to meet strict banking guidelines or have perfect credit. When an unforeseen emergency falls in your lap you oftentimes just pay this immediately. Things like your car breaking down, a sudden toothache or a child needing medicine cannot wait. When money is tight sometimes money that was allocated for bill payments must be used for such emergencies. However not paying the bills by their due date can cost you an enormous about of late fees, especially if they are several smaller bills with large penalties for late payment. Another scenario is if you have already mailed checks for bill payments and suddenly your emergency arises. Now you must run to the Bank to pull funds deposited to cover the checks you wrote. Banks can charge up to $xx per check that bounces plus oftentimes the business you wrote the check to will also charge a fee for a returned check. In these cases, a payday loan makes perfect sense. Rather than pay a large amount in late fees or bounced check fees just paying interest on a cash advance loan to cover these expenses is a wise choice.
Remember payday loans should be used to cover emergency expenses. If you find yourself needing to use payday loans frequently then some restructuring of your expenses are in order. Money paid for the privilege of borrowing on short term loans is costly. Keep your expenses in check and put aside money for a rainy day. These are the best ways to avoid the unnecessary expense of payday loans.