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A Quick Look at Payday Loan Provider Charge

Payday Loan Provider Charge
Payday loans are often the recourse of many who are in need of emergency cash. With a hassle free and fast application process and aggressive advertising practices, online payday loan providers seem to be attracting more and more consumers to use their financial services.

Payday loan providers have, in recent years, been criticized for the high interest rates they charge that is said to be draining money from low income earners who use their services. That is why it is important to find out about what the typical payday loan provider charge is to see if it is indeed unreasonably high.   

Loan application fee

Banks and other big finance companies may charge set-up fees or charge a client for administrative costs for loan processing. One good thing about almost all online payday loans is that there is no payday loan provider charge that a borrower has to pay when he or she files his or her loan application. All that one has to do is fill an online application form, submit it via email, and the loan application will be processed without the loan applicant having to pay an application or processing fee.

Loan interest rate

Payday loans are short term loans, which are due for repayment on the borrower’s next payday. Aside from being short term loans, payday loans are unsecured and therefore require no collateral. With no collateral to guarantee repayment of the payday loan, this type of loan is available for a higher interest rate compared to secured loans. A payday loan provider charge of 20% to 30% of the loan amount is common among many online payday loan lenders.

In reviewing different loan provider websites, you will notice that many lenders charge a simple fixed flat rate with no hidden fees on short term payday loans. With a fixed flat rate, one can easily compute for the payday loan provider charge and total repayment amount. There are even websites that give you multiple loan amounts to choose from and just by clicking on the amount of your choice, you will instantly know how much you have to pay for the loan on your next payday.

A payday loan provider charge between $25 and $30 for every $100 borrowed is common among many payday loan providers. This finance charge is to be paid together with the loan amount when repayment is due. This simply means that if you borrowed $100, you will be paying the loan provider $125 on repayment due date.  If loan amount is $500, you will be paying the loan provider $625 on your due date.

Some payday loan providers charge fixed rates higher than $25 for every $100 borrowed, so that means a higher interest rate. The loan amount with interest is electronically withdrawn from your account by the payday loan provider when repayment is due, if you granted them access to your bank account upon signing the loan agreement. If you issued a postdated check for your repayment, then the check with the principal amount plus interest will be cashed by the lender upon the due date.

Annual percentage rate

percentage rate
When you go to payday loan provider websites to check out the payday loan provider charge, it will surprise you to see more than triple digit interest rates disclosed. These surprisingly high rates are referred to as the APRs or annual percentage rates.

An annual percentage rate is simply the interest and fees that are charged by the lender for the payday loan presented as an annual rate charge. Traditional loans usually have an allowable maximum APR ranging from 25% to 50% depending on state or country laws. However, payday loans are special loans that are different from traditional loans, and so a different payday loan provider charge applies.

A typical APR for a payday loan is 1286%.  Since payday loans are designed to offer a quick financial solution, which has to be repaid in a short time, the annual percentage rate will definitely be high, and is not the best indicator in determining the actual cost of the payday loan. 

Even if APRs can be very misleading, online payday loan providers are required to readily disclose the APR of their payday loans on their websites. However, many lenders do not comply with this requirement, as not to discourage people from applying for a loan when they see such big annual percentage rates.

Deferral fee

Payday loans are expected to be paid back after two weeks. If, due to unavoidable or unforeseen circumstances, a borrower is unable to pay back the loan, the loan is often automatically renewed or deferred. This means that the new repayment date will be on the borrower’s next payday.

The terms “refinancing” and “rolling over” are also used to refer to taking out a loan for an extended term. When a loan is deferred, a borrower may have to pay an additional payday loan provider charge or incur an additional monthly interest.

The interest that is electronically withdrawn by the lender from your account is equivalent to the finance charge based on a flat rate you were expected to pay on due date. This means that if you get a loan for $300 at a flat rate of $25 per $100, you will have to pay for a payday loan provider charge of $75 for deferment.  

A payday loan seems to be the best solution when one is in dire need of cash. Many do not mind paying a higher payday loan provider charge for this type of loan. What matters most to them, especially during emergencies, is that the much needed cash is made available to them quick.

A responsible borrower should always carefully review the services and rates that payday loan providers offer, so that a sound financial decision can be made when faced with an urgent financial need. Learning what about any type of payday loan provider charge will help keep one out of further debt.

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