Payday loan is a small, short-term, high interest rate loan. It also known as cash advance loan, check advance loan, post-dated check loan, or deferred deposit check loan. It often repaid after you receive your next paycheck. Payday loan allows people who are urgently need a cash to cover unexpected expenses to get cash for a small stretch of time against their next paycheck. Payday loan can be approved fast because it does not involve credit check and you can get the cash immediately to cover for any unexpected expenses, but it is also very costly. Let see how payday loan work and how much it will cost you.
How's Payday Loan Work
In applying a payday loan, you will need to issue your personal check to the lender with the amount you wish to borrow plus a fee. The lender will gives you the amount of the check minus the fee. For example, let say you want to $100 for up to 14 days, the lender's fee is $15. Hence, the check amount you need to issue is $115 and the lender will only give you $100. Usually, the payday loan's fee is charged based on a percentage of the face amount of the check or a fee charged per amount borrowed.
Payday loan can be approved within a few hours and there is no credit history check against you. What you need to provide in payday loan application are:
What your source of income is and how much you receive
Your full name, address, and social security number
Your banking information (where funds will be deposited)
Contact information such as phone numbers and email
Within a few hours of applying, you will receive an email or phone call containing your loan approval details (loan amount, payments required, fees and more). After you review your loan approval terms, and then agree to them by phone or email, you will write a check with the agreed amount plus fee and funds will be transferred to your banking account.
If your payday loan term is 14 days and you can't clear the loan at that time, you may "roll-over" the loan, say another 2 weeks, but you will need to pay extra fees for the extension.
How Much It Will Cost You?
Payday loan is a short-term loan secured by a personal check and it is an expensive credit. Take for example, you write a personal check for $115 to borrow $100 for up to 14 days, which is your next payday. The lender will pay you the $100 and hold on your check until your next payday. When the time comes, the lender will deposit the check or you may request the lender to continue on-hold the check by paying a fee to extend the loan say for another two weeks. In this case, the finance charge for the initial loan is $15 and 391 percent APR (annual percentage rate). If you roll-over the loan three times, the finance charge would climb to $60 to borrow $100. It means that you borrow $100 for 4 weeks and you will need to pay $160 to clear the loan ($100 on principal and $60 is fee/interest). Common credit card APRs are range in 10%-18%, compare with the close to 400% APR in payday loan; Payday loan extremely high cost.
Payday loan allows you to draw fast cash to cover for unexpected expenses, but you need to pay for high cost for the usage. It can be avoided if you have created your emergency savings earlier. You should consider the possibilities before choosing a payday loan.