Are There Low Interest Payday Loans?

A man is signing a short term loan agreement
Do Cheap Payday Loans Exist?
Part 1 Cash Advance – An Overview
Part 2 Are There Low Interest Payday Loans?
Part 3 Applying For A Cash Advance Online

The first thing to understand about payday loans is that they are costly. Of course, if you suddenly need some fast cash to go and visit a sick relative or to pay for unexpected child care, a payday loan can help. But, the overall cost of the loan is going to be high. In this article we examine:

  • How costly are payday loans?
  • Dealing with licensed lenders
  • The affordability of a loan
  • Credit ratings and payday loans
  • Avoiding extended debt

Most people using payday loans are not feckless or out spending money on unnecessary luxuries. They are simply people like you who have no access to credit through the usual banks or finance companies and who need a quick cash injection into their budget.

Payday loans are costly

Depending on where you live, interest rates for payday loans can range from 36% APR to a staggering 600% APR or even higher. Then, if you have to extend the loan by taking on a renewal loan to pay off the first, the costs can soon spiral out of control. Borrowers in the US spend billions of dollars each year in fees and charges simply because they are living from one paycheck to another.

Having a good credit rating means you have more alternatives to payday loans

A comparison between a loan of $500 from a bank and the same from a payday lender reveals that the fees from the bank would work out roughly to $250 over a six month period. The same loan from a payday lender would work out to an average of $1,000.

So, before you take out a payday loan it is clear you must know and understand all the costs involved and work out how much it is going to cost in fees and interest.

Licensed lenders for short-term loans

Lenders in most states have to be licensed and in order to find out information about the lenders in your home state you can click on the appropriate link.

A young woman is researching the real cost of short term loans

A licensed lender must produce a contract which is signed by both parties and in this agreement, the lender must state the loan amount, the interest rate, the term of the loan and any additional finance fees.

If you fully understand exactly how much the total cost will be and are certain that you can afford to repay the loan when you are paid, it is safe to go ahead. However, if you will put at risk the payment of your regular expenses such as rent or utility bills, it is better to look for an alternative way to deal with your financial situation.

Affordability factors to consider when taking out loan

In addition to thinking about how much the loan will cost, one of the factors affecting affordability will be how much debt you already have.

Borrowers in the US spend billions of dollars each year in fees and charges simply because they are living from one paycheck to another.

Under the current laws lenders are not obliged to ask you about any outstanding debt but this is an area that is going to affect your ability to repay a loan. There is little point in taking on more debt if you are unable to service your existing commitments.

Like robbing Peter to pay Paul, borrowing to pay off debts is just not sustainable. This could lead to you losing your home either by repossession from the mortgage company or eviction by the landlord.

Credit ratings and payday loans

Before turning to a payday lender to ease a difficult financial problem, look at your credit rating. If this is good you are going to have more options open and if the crisis is short term, it is possible you could get a credit card to help you through.

A picture of dollar bills on a desk along with financial records

Even though rates for credit cards are also high, they are nowhere near the rates charged by payday lenders. However, if this is the route you take, be aware that if you only pay off the minimum amount requested, the interest charges can quickly get high.

Applying for a payday loan will not have an impact on a credit rating unless the debt remains unpaid and the lender takes you to court.

Extended debt and the constant use of loans

One of the important causes of debt is the constant use of payday loans. A single loan that is paid back when due is not going to break you financially. But, if you are unable to meet the full repayment and get into a situation where you are rolling over loans each month, the only winner is going to be the lender.

Payday lenders have underwriters that assess the probability of a loan being paid back. What they do not have at present is a system of underwriting that puts any limits (other than state regulations) on the size of the loan or to consider the impact on a borrower of an ongoing cycle of debt.

Do Cheap Payday Loans Exist?
Part 1 Cash Advance – An Overview
Part 2 Are There Low Interest Payday Loans?
Part 3 Applying For A Cash Advance Online

About the author

Mark Larsen

Mark Larsen has worked in the finance industry for over 20 years. Over the course of his career, Mark has amassed experience in personal finance and especially short-term lending. He shares his valuable insights on onlinecreditusa.com