Although payday loans are the most popular short-term emergency cash loans in the US, some people consider them to be costly. Are they really so? First of all, we have to understand which factors make a loan costly or less expensive. Basically, interest rate and fees are taken into account in order to decide that. Combined, it is called APR (annual percentage rate). The average APR rate of these payday advances is 400%. Which might look a lot, but one has to remember that it is calculated annually. For example, for $100 principal, one has to pay $400 APR per year. That means, per day the cost would be 400/365= $1.1. It does not look huge, does it?
Payroll loans are designed to inject cash into your pocket if there is a sudden unavoidable need. A medical emergency or paying a bill cannot be put on hold. Only then, it is advisable to take out a payday loan. Availing such a debt gives access to a maximum amount of $1,000 with a due that is same as your salary day. That means the terms of a payday loan could be a month, 2 weeks or even less. Sometimes you need a cash advance one week before the paycheck day- that won’t cost you much, anyway. However, if you depend on these debts for long terms, it might hurt your credit rating.
Why Do Payday Loans Have High Interest Rates?
As we just saw, due to the short-term nature of payday loans, the repayment cost is not too much. However, the APR rate is still 400%. And many borrowers ask if that is too high? If so, why is it so?
Firstly, it goes without saying that “convenience” costs money, and payday loans give immediate relief from cash crisis. That also without any credit check and within one day! No other personal loan –both from traditional as well as alternative lenders- can be processed that fast and get approved. Similarly, many types of loans and different lenders do not fund people with bad, poor and no credit histories. Apart from that, many lenders have the provision that allows you to return your principal amount in 3 days of approval without any extra charge. If we take that time away, the term becomes even shorter. Therefore, only an APR rate of 400% can help the lender maintain its service and make a little profit.
Lenders such as CashAmericaToday, however, offer even better rates to the regular customers that make the payment on due. Therefore, you could apply for a payday loan and score better APR by being a responsible borrower.