What are Payday loans and how they can be very expensive
By Joel Teo |
The media has been telling people about how easy it is to get a payday loan
where you can get an unsecured until your next payday. What most people do not
realize until it is too late is that a payday loan is actually a very expensive
form of credit. This article would therefore explain how payday loans work and
why they can be very expensive for the borrower.
Payday Loans are
unsecured loans which charge high interest for short periods of lending. Many
people seem to flock to them to tide over their credit card debts until their
next payday thus the name. Other names for payday loans include cash advance
loans, check advance loans or deferred deposit check loans.
What usually
happens when a borrower signs up for a payday loan is that they write a personal
check to the lender for the amount plus a fee. The company then gives the
borrower the amount of the check less the fee. This fee is usually a portion of
the loan sum.
Thus we can see that a payday loan secured by a personal
check is a very expensive form of credit. A simple loan of $100 would cost you
$115 for 14 days and depending on your contract, it may then increase to $160
later if you choose to roll over the loan. It would therefore be prudent of the
borrower to choose a lender of a payday loan that charges you the least annual
percentage rate (APR) or in other words the cost of credit provided to you on a
yearly basis.
In conclusion, payday loans while popular, represent a
very expensive form of credit. If you should decide on taking up a payday loan,
you should consider spending some time shopping around and looking for the
payday loan finance company with the lowest APR so as to reduce the amount of
fees you would have to pay come your next payday.
About the Author
Learn about payday loans
and debt reduction in our money making directory at http://www.MakeThousandsToday.info
Joel Teo All Rights Reserved 2005
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