Advertisements for an advance payday loan can be found anywhere – on billboards, buses, newspapers, and on the internet. This loan is a short-term loan that offers its borrowers a small amount of instant cash that should be repaid after a very short span of time, usually 1 to 30 days. Although a good option for emergency situations, there are still many people doubting the benefits that payday loans can provide. What really is the catch in payday loans?
The technicalities of payday loans, such as advance payday loan, are quite easy to understand. The requirements of payday lenders are also very simple. Lenders require their borrowers to be 18 years old or above, to have a valid bank account, have monthly earnings, and have proof of employment.
The ‘catch’ of advance payday loan, however, is the high interest rate that is charged by the lenders. More often than not, the interest rate associated with this loan ranges from 10% to 25%. For example, if a 25% interest rate is placed for a $100 borrowed, the borrower will have to pay the lender back with $125. Lenders, however, have a good reason why they ask for high interest rate. Lenders demand high interest rate because they do not conduct credit records checking anymore, meaning they are on a high risk of not getting repaid by borrowers with bad credit records. If this happens, the lender will not be able to recover the amount it has provided for the loan.
To avoid paying high interest rate on advance payday loan, search for a payday lender that offer loan with low interest rate. Also, make sure that you can repay the total amount you borrowed on time so as to avoid rolling over your loan. Lenders put additional charges on the loan, such as penalty and loan extension fees, whenever you extend loan duration.