Payday loans are a quick financial fix before payday. They are advertised as fast and helpful, especially for unexpected expenses, and many people have taken them up. However, in addition to high payday loan interest rates, they require full repayment upon the next payday – which, if not paid, can put you in a worse financial situation.
Read on to learn about how the exorbitant payday loan fees could keep you in a debt loop and a safe payday alternative that can get you some quick cash before payday.
How Does A Payday Loan Work?
A payday loan is a small loan, typically $500 or less, that you pay back on your next payday, in full. It’s unsecured and you only need to show proof of income to access it, which is why they are a common choice, especially among borrowers with low credit scores. The amount borrowed is deposited into your bank account, and when the loan is due, the money is deducted through the same account, plus fees and the interest accrued.
The trouble with payday loans is that lenders do not allow for monthly repayments and tack on additional fees if repayment is not made. The payday loan interest rates are often high, and you must pay it all on the day you receive the next paycheck.
Some states have come up with regulations that cap the amount of interest and fees, with some states banning payday loans entirely, but payday loans are still quite expensive than regular loans.
Payday Loan Interest Rates and Fees
Here are the rates and fees that a payday loan incur:
1. Interest rates
Traditionally, payday loans charge a percentage or a dollar amount for every $100 borrowed. This fee ranges between $10-30, depending on what your state allows. Compounded annually, this amount equates to a 400% interest rate on your two-week loan. For example, assuming you’re charged $15 per $100 and you borrow $400, you would pay back $460 in two weeks. That translates to a 360% payday loan interest rate per year. This rate is much higher compared to the interest on credit cards, bank loans, debt management programs, or typical online lending.
2. Rollovers
If you cannot pay your loan on time, if your state permits, the lender can allow you to pay the fees due and roll over the loan to the next month. The rolled over loan attracts a second fee in addition to the principal amount. For example, if you are required to pay $460 but your budget does not allow it, the lender may allow you to pay $60 in fees, and then you will still owe $460 the following payday. With the high payday loan interest rates, you can end up paying a significant amount in a very short time.
3. Late fees
Failing to pay your loan on time attracts additional payday loan fees. The same happens if your check returns; you pay a returned check fee. These costs may seem minimal but if you’re caught up in a debt loop, these extra costs add up quickly.
4. Repayment plans
Depending on your state laws, some states require payday loan lenders to offer an extended repayment plan to borrowers struggling to repay their payday loans. While it has no effect on payday loan interest rates, some lenders may provide additional time without additional costs, but others may charge additional fees. Therefore, the more you delay paying the loan, the deeper you go into debt.
Payday Loans are Unaffordable
Most borrowers in America would have difficulty affording a payday loan while sufficiently covering their basic expenses. Paying the loan in full consumes a significant portion of the average gross paycheck, which is why most borrowers have to roll over or renew their loans at every payday. The result is they have to take out another loan within two weeks of the previous one just to get by. They must also incur high payday loan interest rates because most lenders charge the maximum rate the state law allows. For states without limits, the payday loan fees are even higher.
Payday Loan Alternatives
It’s best to have a contingency fund set aside to take care of unexpected expenses without incurring any costs. But with a teetering economy that has inflation at an all-time high, it’s not always easy to keep some money aside. You may still need financial help, but it should be affordable.
Minute Loan Center does not offer payday loans, but you can apply for a personal loan to get you through to your next payday. Our installment loans process fast, are unsecured, and short-term, designed to help you cover emergency expenses. They offer greater flexibility by spreading the payments over an extended period, minimizing the impact of the debt on your paycheck. Apply for a Minute Loan Center installment loan today and avoid costly payday loan interest rates and fees.
Kevin brings over 15 years of experience in marketing, with a specialized expertise in growing online businesses. As the Director of Marketing at a leading FINtech company, he employs innovative strategies to enhance brand visibility and customer engagement. Kevin’s passion lies at the intersection of technology and finance, where he pioneers solutions that not only meet but exceed consumer expectations. His commitment to leveraging his expertise ensures impactful results and the building of lasting relationships in the digital landscape.
