Payday Advances Are The Planet's Most Costly Money



If someone told you that they would lend you $500 today if you paid back them with $5000 a year from today, would you take it? What if the reimbursement amount were only $2500? Would that strike you as a good deal? This may sound like an insane amount to pay back on a little loan, but that, in effect, is what thousands of consumers do each day when they take out a payday loan.

Payday loans, also known as cash advance or 30 day payday loans, are brief term loans that usually last about two weeks. In exchange for borrowing fairly small sums ranging from $100-500, the borrower pays a fee that can range from $10-40 per $100 lent for the two-week loan. The consumer writes a postdated check for the borrowed sum as well as the fee, which the lender may cash two weeks later.

These fees may seem fairly little, but when viewed as an annual percentage rate, they actually range to anywhere between 250-1000% each year. That's an astronomical amount of interest in a world where a credit card loan at 25% is considered to be high. And yet, the payday loan company is thriving and you will find now some 23,000 stores in America that offer some type of these 30 day payday loans.

Why do people take out such loans? The primary reasons are convenience along with a lack of much better alternatives. These stores are now so common that you will find often several of them on a single block. They don't do credit checks and they will lend cash to fairly much anyone with a steady job. And also the borrowers tend to be people who do not have access to other borrowing options, such as credit cards, buddies with cash or a local credit union that provides short 30 day payday loans.

Defenders of these financial products say that they are simply providing a product that the public desires. That may very nicely be true, as these businesses are doing very well. What remains to be answered is whether or not the public truly wants to borrow money at 500% per year. In all probability, they are doing so only because they cannot find a less costly choice. Anyone who needs a short term loan is much more than welcome to go to a payday loan store to get one. But any potential borrowers should realize that they making use of one of the planet's most costly forms of lending.

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