Mar 18, 2012

Payday loans compared to other quick money

If you apply for a payday loan online in the internet, the process of getting the money will be quick and easy. After filling a simple application form, the approval will not take long, and money will be transferred on your bank account withing an hour (in some cases on the next bank day). If you visit payday lender office in person, you can get your money right away from the counter.

No credit check is needed, no fax usually too

Payday loans doesn’t require a credit check. That is important for those who have bad credit score and still need an emergency loan. It also helps to keep a process of borrowing money simple and streamlined. Most lenders doesn’t ask for a proof of your salary and residence – no fax is needed to approve your application.

A flip side of this is that the risk of being not able to repay the loan is on you – nobody will tell you if this money is too much for you at this moment – you should make a decision yourself.

Cheaper than overdrafts for small amounts

Typical overdraft fee for a debit card is between $30 and $35. For the small amounts that flat fee can cost you more than payday loan fee. For example a payday loan for $100 will cost you extra $10 -$15, loan for $200 will cause $20-$30 overheads. That mean that if you need more that $200 payday loan, you can consider an overdraft, if less overdraft will cost you more than payday loan.

 Credit cards are usually better if you have one

 Normally if you have a credit card with a credit limit that is enough for your current money needs – it will be the best option for you to use a credit card to borrow money. Credit card APR is usually significantly less than a payday loan interest. And it is more convenient to use a credit card anyway.

But if turns out differently if you need money in cash – take into consideration that credit card cash advance has much worse terms than a credit card purchase. If you withdraw cash from a credit card account you usually pay extra fees and an increased APR:

      Interest rate is much higher for cash advance than regular credit card purchase APR – it is 20-25% normally.

      There is no grace period at all (that is what you normally expect from a credit card) for credit card cash advance –interest starts ticking at the moment you get the money form an ATM.

      From 2 up to 4 % additional fee is applied to the cashed amount when you take cash advance. For some credit cards these fees are flat and do not depend on the amount cashed out.

      Cash advance debt with higher interest rate usually cannot be paid out before the outstanding credit card balance. That helps you to get to the debt trap and makes your bank reacher.

But remember that if you will not be able to repay a credit card debt it will not only damage your credit history but also involve additional fees that can easily double your debt.

Average payday loan APR

Regular payday loan term is very short – usually till the next paycheck within a two week period. But to still be profitable for a lender and to cover processing fees and probability of borrower default it needs to have relatively high APR – somewhere about 300-400% annual. That usually is much higher than most state allowed APR for regular loans which is about 60% APR normally. Some states give a cap over a fee that can be asked for every $100 of a payday loan – e.g. $15 for every $100 of a loan, or $10 for every $100 of a loan plus $5 over entire loan.

With a view of the above the cheapest option for a urgent money need is a credit card, next one is a debit card overdraft (but only for more than $200 loan). But if an individual doesn’t have an opportunity to get a credit card or doesn’t have a debit one, but urgently needs money, payday loan can be the last option.

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