Payday Cash Loans Are The World's Most Costly Cash

Payday Cash Loans Are The World's Most Costly Cash

If someone told you that they would likely lend you $500 today if you paid back them with $5000 a year from today, would you take it? What if the repayment amount were only $2500? Would that strike you as a good deal? This may seem like an insane amount to pay back on a little loan, but that, in effect, is what thousands of consumers do every day when they take out a payday loan.

Pay day loans, also known as cash advance or 30 day payday loans, are brief term loans that usually last about two weeks. In exchange for borrowing relatively small sums ranging from $100-500, the borrower pays a fee that may range from $10-40 per $100 lent for the two-week loan. The customer writes a postdated check for the borrowed sum plus the fee, which the lender may cash two weeks later.

These fees might seem fairly little, but when viewed as an annual percentage rate, they actually range to anywhere between 250-1000% each year. That's an astronomical amount of interest in a world where a credit card loan at 25% is regarded as to be high. And yet, the payday loan company is thriving and you will find now some 23,000 stores in America that offer some form of these 30 day payday loans.

Why do people take out such loans? The primary factors are convenience along with a lack of much better alternatives. These stores are now so common that there are often several of them on a single block. They don't do credit report checks and they will lend cash to fairly much anyone with a steady job. And the borrowers tend to be people who do not have access to other borrowing choices, such as credit cards, buddies with cash or a local credit union that offers short 30 day payday loans.

Defenders of these financial products say that they're simply providing a product that the public desires. That may very well be true, as these businesses are doing extremely well. What remains to be answered is whether or not the public truly wants to borrow money at 500% per year. In all likelihood, they are doing so only because they cannot discover a less costly choice. Anyone who needs a short term loan is more than welcome to go to a payday loan store to get one. But any potential borrowers ought to realize that they making use of one of the planet's most costly forms of lending.

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