How much do Payday Loans cost?

Payday loans have a dubious reputation for having extremely high interest rates. They may seem like a viable source for emergency cash, but their high cost makes them not worth it in many situations. Here, we will evaluate the true cost of a payday loan.

In the recent past, most payday lenders offered a maximum of $500. Now, you can borrow up to $1,500 at a time, but borrowing as much as you can is not a good idea. The higher the amount of your loan, the more interest you will pay; some lenders add surcharges for borrowing over a set amount. It's advisable to only borrow what you need and what you can afford to repay.

The high interest is the most negative aspect of payday loans. Most companies charge anywhere from eight to thirty dollars per week on every one hundred borrowed. The APR, or annual percentage rate can exceed 300%; in fact, it can reach an astounding 900%. By comparison, most credit cards charge a maximum APR of 30%.

Because most payday loans have a term of two weeks or less, interest accrues daily. That makes it absolutely essential that you pay on time; if you borrow $500 for two weeks at a rate of $10/$100, that's $50 weekly in interest. If you can't pay on time, your loan will roll over, and if it does more than once, you can pay as much in interest as the original amount of your loan. There are other fees involved as well- most payday loans process in days or even hours. Asking for a rush delivery means more fees, too.

Since interest accrues daily, it may be to your advantage to pay early, but beware that some companies charge prepayment penalties as a way of making up for the interest they won't be collecting if you pay exactly on time.

Payday loans are very expensive, but for some situations, it's the only real option. Before you sign, find the most reliable and affordable lender available. Hidden charges and scams are more common than ever- be sure to read the terms and conditions carefully, and don't be afraid to ask questions. After all, it's your money, and where finances are concerned, there's no such thing as "too careful".