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Payday Loan
"I just need enough cash to tide me over until payday." Sounds
familiar to you? I'm betting it does. We constantly find ads to
this effect on the radio, television, the Internet, and even in
the mail. The type of loan being referred to, of course, is
payday loans. And they come at a very high price, too, by the
way.
Payday loans have become a way for people to get fast cash.
Check cashers, finance companies and others are making small,
short-term, high-rate payday loans that go by a variety of
names. Sometimes, they're called cash advance loans, check
advance loans, post-dated check loans or deferred deposit check
loans.
But how do payday loans work? Well, usually, a borrower writes a
personal check payable to the lender for the amount he or she
wishes to borrow plus a fee. Afterwards, the company or the
lending institution would then give the borrower the amount of
money in the check minus the fee. The fees charged for payday
loans are usually a percentage of the face value of the check.
Sometimes, the fee may be charged per amount borrowed. For
instance, for every $100 loan you borrow, you get charged a fee
of $50. If the loan is extended, a process referred to as
"roll-over", you are obliged to pay the additional fees that
could incur. So for example, you make an extension of two weeks
for your $100 loan. That means, you pay a total of $150 in fees,
provided that one week equals to a $50 fee.
The Paperwork
Under the Truth in Lending Act, the cost of payday loans, like
other types of credit, must be disclosed to the borrower. Other
pieces of relevant information that you must receive in writing
include the finance charge or the dollar amount and the annual
percentage rate or APR. The APR refers to the cost of credit on
a yearly basis.
Fast Cash, High Rates
A payday loan, which is a cash advance loan secured by a
personal check, is a very expensive source of credit. But
despite this, many people still opt for payday loans. To explain
to you just how expensive payday loans can be, let's say that
you need to borrow $100 and so you write a check for $115 which
would pay your loan for up to 14 days. The check casher or
payday lender agrees to hold the check until your next payday.
At that time, depending on the particular plan, the lender
deposits the check. You then redeem the check by paying the $115
in cash. If you can't make the payment, you can also roll-over
the check by paying a fee to extend the loan for another two
weeks. In this example, the lender charges you $15 as fee and at
the same time, the loan costs you 391 percent APR. If you
roll-over the loan three times, the finance charge would climb
to $60 to borrow $100.
About the author:
Tony Forster has a keen interest in living debt free having been
"up to his ears" before I realized the need to take control. I
am compiling a useful online resource at http://www.loan4payday.info enabling anyone to find the perfect money managment for
them.
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