Payday loans are notorious for high interest rates. These rates intimidate borrowers and keep them wondering if they are at risk to debt cycles that could ruin them financially. At a closer look, these rates are not nearly as dangerous, or costly, as they are made out to be.
Payday loans are short term, small amount loans with high interest that usually only last a few weeks. They are often used to remedy a tight financial situation between paydays.
These transactions have a very short loan life, so the high interest rates tagged onto these loans are not always as painful on your wallet as the numbers look on paper. For example, a 391 percent APR may sound costly and daunting, but this rate only amounts to around 15 dollars per 100 dollars borrowed. Therefore, a borrower who wanted to take out a 300 dollar loan would do so and pay back 45 dollars in interest, for a grand repayment of 345 dollars. As long as the loan is repaid on time to avoid a roll-over, a consumer should have no problem with the interest rates.
The reason that these interest rates look so high is because the amount paid (15 percent per 100 dollars in our case) is rolled 26 times to get the triple digit figure. The amount that is shown is the payment that would be allotted for a full year of rolling the loan.
These figures, from the CFSAA, show the actual costs of APR's that appear very high at first glance. A 100 dollar bounced check with 56 dollars of non-sufficient funds and merchant fees will amount to an APR of 1,449 percent. Similarly, a 100 dollar utility bill with a 46 dollar late fee will amount to 1,203 percent interest rates. To state it simply: the annual percentage rates are significantly lower in value then they first look. They will only soar to astronomic financial barriers if the borrower fails to repay the loan and is caught up in years of roll-over fees and debt-collecting.
Lenders expect their customers to borrow responsibly, and repay their loan when it is due. If a borrower is cautious to choose an amount of money that is easily repayable, then he or she will most likely have a satisfying payday loan experience. According to the Community Financial Services Association of America, 86 percent of the industry's customers believe that this is a useful financial product, and 88 percent were satisfied with their last transaction.
Payday loan companies are not the only financial industry using these high APR's. Credit unions and banks have also dabbled in the high rates. These institutions often offer slightly lower rates, and create competition for payday lenders.
Payday loans try to keep their rates low; and between companies competition is fierce. Each lender desires to offer lower rates in order to obtain more business. Unfortunately, state regulations often cap these rates so low that lenders cannot possibly make a substantial profit.
Military personnel have a personal cap that allows them to borrow payday loans for no more than 36 percent APR. Many states have applied this as a statewide interest rate cap, and driven the industry from the state. The rate is so petty that lenders cannot sustain a living on the meager profit that they receive.
In conclusion, payday loans are often very helpful and can benefit Americans who are not able to provide financially in a time of need. Many states prevent the amount of roll-overs that citizens are allowed on a payday loan, in order to guard Americans from being caught in a debt-cycle. Many lenders desire to give their customers satisfying and helpful loans, with the best rates they can manage.
If you are in a tight spot financially, and are looking for some needed cash, an may be just what you need. Apply today and get the cash you need!
