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The Hidden Costs Of Payday Loans

Mar 23, 2008
If you are reading this, you no doubt know what its like to live from one paycheck to the next.

Some people plan their finances very carefully and make sure they spend strictly within their means. They will never splurge on a brand new jewelry set, new clothes or a swanky new car if they knew it could possibly put them in the red. However, sometimes even hard working people can be caught by surprise and thrown into a financial crunch by some exigency such as an emergency car repair or doctor's high bill. If you find yourself in this sort of situation, a payday cash advance loan might just be the extra boost you need to get through the immediate money crunch.

Before you apply for a payday loan, you should first make sure you really need it. In case of an absolute emergency situation, such as unexpected car repairs or a higher than usual utility bill or high medical bills; taking a loan may be completely unavoidable. However, you should refrain from taking a loan, if you have the slightest suspicion that you may not be to repay the loan on time. You'd only be piling on more debt on top of the debt that already exists.

Researching payday loan companies

It is wise to research payday loan companies before doing business with them. A simple Internet search will provide you with links to quite a few companies who each have different requirements and terms. By reading all of the fine print and comparing what several companies offer, you will be in a better position to choose the best payday loanlender for you and your individual situation.

The costs associated with a payday loan can vary from company to company and even from state to state. The laws in California for instance may dictate certain limitations on the fees that their companies are allowed to charge. The same rules may or may not be in force in Florida or North Carolina.

One thing that you should be aware of is that as a borrower, you have certain rights from the beginning. According to the Truth in Lending Act of 1968, all financial lenders must disclose up front any and all fees associated with the loan they are offering and must offer that disclosure to the borrower in writing. This disclosure also includes informing you of the annual percentage rate (APR) of the loan (or in simpler terms, how much the loan would cost you on an annual basis).

The APR of an average loan that is acquired through a traditional lender is somewhere in the neighborhood of 7%. Based on recent surveys that have showed the average payday loan will cost the borrower about twenty five dollars ($25) per hundred dollars borrowed, a payday loan carries an APR of about 650%. How do you arrive at such a high number? It's simple, really. Let's say for example that ABC payday lender charges $25 for you to borrow $100 and that you must pay back the loan plus the fee in two weeks time. If you do the math, the APR of this sample loan would be 651.79%. Of course as was mentioned previously, not all payday loan companies charge the same amount. The Truth in Lending Statement will provide you with all of the details about any fees and charges as well as show you what the annual percentage rate is for your particular loan.

Another key factor to keep in mind is the repayment period for the loan. Typically the loan will need to be paid in full within two weeks. If you are able to pay off the loan and the associated fee in that period of time, there is nothing more for you to worry about. If however you are like many people who avail themselves of this type of service you are unable to fulfill your obligation in the time frame outlined in your original agreement, the majority of payday cash advance lenders will allow you to extend the term of the contract. While this can be a tempting offer that enables you to put off thinking about your financial problems for another couple of weeks, you need to be aware that extending the length of your loan will add to the fees that you are responsible for. Most often, the fee for such a term extension is higher than the original fee.

Before you enter this or any other such contract, do your homework. Don't do what we are all guilty of from time to time and ignore the fine print of your contract. Read and understand what you are getting yourself into or you might just end up paying the price later!
About the Author
Let us help you sort out the good payday loan lenders from the bad! HotFastCash.com is a comprehensive source of payday loan lender reviews and lending information for consumers.
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