Payday Loan Interest Rates - Are They Really A Rip Off?

Sunday, December 23, 2012

There are many people who avail of a faxless payday loan without comprehending how the interest rates work. The nature of this business is that most people who use payday loans need to do so in some emergency situation. In general the main consideration is the fact that an emergency payday loan application will be accepted and cash will arrive in time to sort out the emergency.

This in turn leads to an industry that has a very mixed press. In the UK the industry is younger than in America; there is however plenty of companies to choose from for those who may need to avail of these types of loans. For the moment it is a growing and competitive industry and for many of its customers a real necessity and service, when they have no other financial option to turn to in stressful times.

So let's examine the interest rates, which can be up to 2700%. At a first glance this sounds like daylight robbery, but as the name of payday loan suggests they are purely an advance on the pay a lender is due to receive at the end of the month. For various reasons there are a growing number of people who cannot reach the end of the month financially and therefore they need this service. I remember a time that there were bosses who would help out their staff by advancing them some of their wages in a time of need.

If we put this apparently massive APR to one side and look at the industry slightly differently it may help people understand it from another perspective. Essentially many of these service providers lay out clearly on their websites the fact that they charge a one-off fee. For example a lender who is lending £250 and states clearly that there will be a one off charge of £75 on this, bringing the total to pay back up to £325.

However the one off charge only applies if the loan is paid back in the 30 day term, and in reality not everyone taking out these types of loans manages to do this. Yet for those who can keep within the term it can be a fair deal, not cheap but at least fair. For example if someone needs to get their car fixed urgently so that they can still go to work, well then for sure the one off fee is well worth it. I can describe many situations where it makes financial sense, as well as keeping stress levels to a minimum sense.

In conclusion they are not interest rates in the same way as those we have traditionally dealt with, as these loans last for a few weeks and not a year, and on top of this a flat fee is something a person chooses to accept or not. It is not an inexpensive way of laying your hands on emergency cash however if you keep it to emergencies only plus pay back the cash in the 30 day term then a faxless payday loan can be effective in certain situations.

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