| When you need quick cash, what could be more | | | | checking account. If you have $575 in your account, |
| convenient than taking out a same-day payday loan | | | | then you are finished and the transaction is |
| that is deposited directly into your bank account? On | | | | completed. |
| your next payday - a week or two later - the loan is | | | | You will have paid $75 for your loan. That translates |
| automatically repaid because the creditor has your | | | | into an annual percentage rate (APR) of 780%. It's |
| bank information. Sure, there is a fee, but there's no | | | | very high, but that's because calculating the APR is |
| credit check, no collateral, and no lengthy application | | | | complex and involves not only the loan amount and |
| process like there is for a personal loan. You just | | | | the fee, but the period of the loan-how long until you |
| walk into the payday loan office or go online, fill out a | | | | pay it back. |
| few forms proving that you have a steady job and a | | | | The big danger is that many customers can't pay |
| checking account, and you get up to $2,000 the | | | | back the loan on time. Think about it - a customer |
| same day. | | | | who does not have $500 in his or her bank account |
| It sounds easy, but it may not be such a good deal. | | | | this week is unlikely to have $575 in their account |
| Payday loans are defined as short-term loans with an | | | | next week. Many customers "roll over" their loans. |
| interest rate above 36%. That sounds like a high | | | | They cannot pay on the due date, so the creditor |
| rate, doesn't it? After all, you see new car loans | | | | charges the $75 fee and agrees to collect on the |
| advertised for zero percent, and home mortgages | | | | next payday. |
| for 6%. Personal loans from banks are generally | | | | Are You the Average Payday Loan Customer? |
| between 10% and 15%. Even credit card cash | | | | According to the Consumer Federation of America, |
| advances can be cheaper. A $300 cash advance on | | | | from a single lender each year the average payday |
| the average credit card, repaid in one month, would | | | | loan customer takes eight to thirteen payday loans |
| incur a finance charge of $13.99 at an APR of 57%. | | | | or loan renewals. So if you are the average |
| To make it sound less expensive, payday loan | | | | customer, let's say you roll over or renew your $500 |
| providers don't advertise their annual percentage rate | | | | loan 10 times in one year. To borrow $500 for 10 |
| (APR) the same way credit card and personal loan | | | | weeks, you will pay a total of $750 in finance |
| providers do. They state the interest in terms of a | | | | charges plus repay the amount borrowed. Your $500 |
| fee per $100 loaned. Here's a typical example. | | | | payday loan will end up costing you $1,250. |
| How the Fee Translates to APR | | | | There are additional risks and fees. To get a payday |
| You walk into the payday loan office or apply online. | | | | loan you are required to give the creditor a personal |
| You need to borrow $500 until your next payday, | | | | check as repayment. If your check bounces, your |
| which is in seven days. The fee for your loan is $15 | | | | bank will charge you a fee - often as high as $40. |
| per $100 borrowed. You think, "That's not so bad, it's | | | | You can lose your bank account or have difficulty |
| 15%, isn't it"? You agree to the loan terms and you | | | | opening a new bank account if you develop a record |
| give the lender a check in the amount of $575, dated | | | | of bouncing checks used to get payday loans. |
| in seven days. | | | | Before you take out a payday loan, carefully consider |
| When your loan is due to be repaid in seven days | | | | the real cost - and ask yourself if it's worth it. |
| the creditor will cash the check or debit your | | | | |