When one is discussing about the things one should know about payday loans, it is imperative that one knows what exactly a pay day loan is? Who issues them? How it can benefit a borrower? And of course what are the things one should be cautious of while availing of a payday loan?
Let's begin by defining a pay day loan; it is typically a short term loan based on the borrower's personal check. Due to the short nature of the loan interest charged can be quite high. These loans can be issued by lenders as well as banks. If one were to consider how these loans benefit a borrower one can say that it helps them sail through a financial crisis. Any kind of emergency like a medical emergency or your car needs repairs. These are sudden and unexpected and they can upset the budget of the most careful financial planner. A payday loan can come to your rescue in such a situation. Some important things you should keep in mind while applying for a payday loan.
1. You should clearly understand the APR. As in the case of most pay day loans finance charges are in the range of $15 to $30 per $100 borrowed. However when the same is computed as Annual Percentage Rate, the picture totally changes. The Apr can be as high as 390 to 780 percent. Lenders are required to inform the borrower about the actual cost of the loan in terms of annual percentage rate. Pay day loans have a short term and it is usually less than a year, so the APR is quite high. One needs to be circumspect while going through the terms and conditions of the loan.
2. You should know what a rollover is. Most borrowers of payday loans renew their loans at least one time. At the time the borrowers request for an extension on the pay back period of their pay day loans. It is rolled over to a date in the future for the repayment. This date usually falls on the borrowers next pay day. However each time there is a roll over there are additional charges these can lead to bad debts and a financial mess. Most states allow unlimited rollovers.
3. Borrow only from trusted lenders. Be circumspect when your payday lender on the internet gives very little information about themselves but try to gather as much information about you as possible. Bear in mind that their only contact information may be toll free numbers and e-mail addresses. Often the physical address of the lender is not provided. Lenders may require you to sign a document that gives them the right to collect their debt by getting your wage garnished.
4. You should know the law that governs payday loans in your state. As far as laws governing pay day loans are concerned they differ from state to state. In some states pay day loans are illegal. In states such as Washington extended payment plans are compulsory. You should do a thorough research before applying for a loan. Lastly in states in which pay day loans are illegal the lender is likely to charge you a high fee as he won't be licensed. So approach a lender whose reputation is good. Use pay day loans wisely to take advantage of them. Avoid getting into a cycle of debt.