Is a Payday Loan Right For You?4 min read
Taking out a payday loan is an option for individuals who are facing a cash shortage. There are several options available to you, and it’s important to know what the fees and costs are for each one. You should also understand how much interest you’ll be charged.
Average interest rate
Depending on the state you live in, the average interest rate on a payday loan may be as low as 300% to as high as 500%. These types of loans are typically used to pay for basic necessities such as rent or utilities.
These types of loans may be a wise financial move for some people, but they can also be a financial nightmare. When borrowers can’t pay off the loan in a timely manner, the interest rates can soar.
The average payday loan is short-term and usually involves a postdated check. If the loan is delayed, the lender will add a rollover fee to the principal amount.
In fact, some states are banning payday loans altogether. In Nebraska, voters recently approved a bill to limit the interest rate on payday loans to 36%. This was a measure pushed by state Senator Jason Howell.
The average payday loan is usually a relatively small amount ranging from $100 to $1,000. However, the APR on these types of loans can be much higher than the rates you will pay on an online loan.
Fees and costs
Taking out a payday loan may seem like a quick and easy solution to an emergency bill, but if you aren’t careful, it can turn into an expensive debt cycle. Payday lenders charge astronomical interest rates, and the fees can exceed the original loan amount.
According to the Consumer Financial Protection Bureau (CFPB), the average payday loan fees are $15 for every $100 borrowed. That’s equivalent to a 400 percent annual percentage rate (APR) for a two-week loan.
Payday lenders also charge a late fee, non-sufficient funds fee and returned payment fee. You should always ask to be granted an extension on your bills to avoid these fees.
Some lenders offer a rollover option to extend the loan’s duration, but this can come with its own set of fees. For example, you may be charged a fee to load your loan’s funds onto a prepaid debit card. Other fees may include fees for checking your balance or adding money.
Protections for active duty service members and dependents
Whether you’re a service member or a civilian, there are several laws designed to help you protect your financial well-being. This includes the Servicemembers’ Civil Relief Act (SCRA), which provides special protections for active duty service members and their families. Having a clear understanding of your rights can help you avoid debt and work towards a more secure financial future.
SCRA covers many types of loans, including rental agreements, leases, mortgages, credit cards, and repossessions. In addition, the law allows service members to postpone certain obligations. Those obligations include repayment of loans and leases, repayment of rent, and assignment of life insurance.
SCRA also gives service members special protections against foreclosure on their homes. If you are a service member and are facing foreclosure, you can request a court order to stop the foreclosure process. If the court finds your military service materially affected your ability to pay, the foreclosure process will be suspended.
The federal SCRA also includes caps on interest rates. Service members can cap their interest rates at 6 percent per year while on active duty. They can also get a refund if the lender charges them extra interest above the cap.
Alternatives to payday loans
Getting a payday loan may seem like a good solution, but it’s not the only option. In fact, if you’re facing a financial emergency, you may want to consider other options.
Credit cards and overdrafts are two options that may be less expensive than payday loans. You can also try borrowing from friends or family. However, you will need to be careful about the risks associated with this.
Payday loans can be a great solution to short-term needs, such as paying for utility bills. However, these loans can be difficult to pay off. In some cases, they can leave borrowers worse off than they were before they took out the loan.
If you have a bad credit score, you may be turned down for payday loans. If you do get one, be sure to shop around for lower interest rates. Often, credit counselors can help you set up a budget and keep your debt under control. You can find these agencies online or through other sources.