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Twelve Facts about Payday Loans

[May 28, 2010.]

 

Instant payday loans have a bad reputation among many consumers and in some states payday loans are heavily regulated or even banned. Yet, used correctly, fast payday loans can sometimes be the best solution to solve an emergency need for cash.

Twelve Facts About Payday Loans

  1. Payday loans are usually small, with borrowers restricted to a maximum between $500 and $1,000.
  2. Quick payday loans allow you to receive money immediately, but they also must be paid back fast, usually within a few pay periods.
  3. Short term payday loans typically require the borrower to provide a post-dated check or debit authorization.
  4. Paydays loans usually have a fixed fee that reflects the finance charge for the loan. The cost of borrowing payday advance loans is usually much higher than other types of credit, so it is important for payday loan borrowers to pay back these loans as quickly as possible.
  5. Fast payday loans are usually available to anyone with a checking account and a steady job. No credit check is required.
  6. Consumers without a credit card or without access to other credit can turn to quick payday loans for short term cash needs.
  7. On the negative side, if you cannot pay a payday loan back quickly, you are charged additional fees that can add up to a lot of debt.
  8. The average annual percentage rate (APR) for a payday loan is usually around 400%, but in some cases the APR is as high as 5,000%. Be sure to search online for the best payday loans. By comparison, standard credit card rates are around 12% and rarely go higher than 30% APR.
  9. Some states, such as New York, ban payday loans. Others regulate loan maximums and the amount of the fees the lender can charge.
  10. Payday loan fees can often be higher than a late fee on a bill, so be sure you consider all your options for delaying payments or borrowing money in another way before opting for payday loans.
  11. Payday loan fees vary from lender to lender, so shop around for the best payday loans to make sure you are paying the lowest possible fees.
  12. In order to use payday loans wisely, consumers should borrow the least amount of money and pay it back within the next pay period.

While instant payday loans can occasionally be necessary for emergency cash needs, consumers should also work to build a savings account that, at a bare minimum, is equal to the amount of one paycheck. Better yet, open an account and have savings transferred automatically from each paycheck until you have built an emergency fund of at least two months of expenses. That way you can rely more on your own money and less on payday loans when unexpected bills arrive.

 

About Author:

Michele Lerner is a freelance writer with twenty years of experience writing articles and web content for newspapers and magazines on topics related to real estate, personal finance, and business.

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