Do you need some emergency money? If so then you should consider Payday Loans. Before deciding if they’re the best option for you make sure to know some of the main facts about them including the following:
1. It’s a small, short-term loan
Payday Loans are small loans that are usually paid back in two weeks when the borrower gets their next paycheck. They differ from many other traditional loans since there’s no collateral involved and the application process is very basic.
One key fact to keep in mind is that interest is charged. In fact, the rate is sometimes quite high since there’s no collateral required. However, when the lender needs the money for certain emergencies, it’s certainly worth paying the interest if it means they can get the money quickly.
2. It can put people in long-term debt
This is ironic since the payday loan is itself a short-term loan that’s meant to be paid back in two weeks. However, it’s important to note that rolling over payday loans makes up 75% of all volume of pay-day loans. It can cause a lot of long-term loan and often does. In fact, on average a pay-day borrower stays in debt for over 210 days per year.
In other words, standard payday borrowers are in debt almost 60% of the year because of their loans. So while the debt itself is often paid on payday, rolling over the current loans every two weeks can result in loans that last for about seven months of the year. It’s ironic since the loan is in theory for two weeks.
3. It’s become a booming business since the 1990s
In fact, pay-day loans generate $27 billion in yearly loan volume, which is quite a high figure in the world of finance. Another interesting fact is there are over two payday loan shops for every Starbucks coffee shop. This shows the fact that it’s become a very popular type of loan due in part to the wide availability.
4. It can include sky-high yearly interest rates
The interest rate for the two-week period is somewhat high compared to long-term loans. Is it worth it? If you need quick money for an emergency, then you’ll likely be willing to pay a 15% interest rate on loan, for example.
However, if you’re unable to pay the loan back you should be aware the annual interest rate for a payday loan can be as high as about 400%, for example. So if you’re going to take out one of these loans, you should certainly try to repay it as quickly as possible so you can avoid sky-high interest rates. This will help to reduce the total cost of the loan.
5. It often includes several loans per year
Here’s an interesting fact. 90% of pay-day loans involve borrowers who take out 5+ of the loans per year. So when people take out pay-day loans, it’s often a type of loan that they often pick for whatever reason. They could include the loan’s convenience or other issues.