If you need to get money quickly, you might be tempted to apply for a payday loan, which is a high-cost, short-term loan, usually for $ 500 or less, that is due near your next payday.
However, whether they come from an online lender or your neighborhood check cashing store, these loans come with high costs that can be difficult to recoup and should be considered as a last resort afterward. having exhausted all other options.
What’s in a payday loan?
Payday loans are usually small amounts of cash that are received quickly and must be paid off in a single payment. If they are not paid in full by the due date, additional charges generally apply and the due date is extended. This can lead you to fall into a vicious cycle that restarts over and over again, incurring more and more charges.
As a result, they increase the possibility of bankruptcy.
What are the hidden costs in borrowing $400?
Suppose that for whatever reason you cannot afford this month’s rent and you need $400, fast. So you decide to apply for a payday loan.
Unlike a bank loan or credit card, which primarily base loan costs on an interest rate, most payday loan lenders charge you a flat fee when you take out a loan, usually of $10 to $30 for every $100 borrowed. When that is compared to what you could pay in interest on other types of short-term loans, this turns out to be one of the most expensive ways to get cash quickly.
With a flat fee of $20 for every $100 borrowed, a $400 loan could cost you $ 80 in fees to begin with.
Warning: loan extensions
Every time you extend your $400 loan, that initial $80 fee is charged again. Before long, those hidden costs exceed the initial loan amount.
More reasons to be careful.
Many lenders require that a post-dated check be written to pay them back.
This simply means writing a check and putting a future date on it (the date you plan to repay the loan). If the check is returned to you, you may be charged even more fees, and your bank will, too, which often corresponds to a penalty of approximately $ 35.
Payday loan lenders can withdraw money directly from your bank account. If funds are not available, you could face overdraft or insufficient funds fees from the bank and the lender.
Before looking for a payday loan, consider one of the many options, like bank loans or secured finance loans. An additional or late fee may apply.