What do you do when you need money urgently, and nobody can lend you the right amount? You can’t ask your friends or family all the time, and a bank won’t give you a small amount for personal use.
For this type of situations, some financial institutions can offer you small sums of money for a short period. For example, if you need money right away for making a significant purchase, you can choose a financial institution, and they’ll give you up until $1000.
We’re talking here about short-term loans, like the payday loan or the SMS loan. Let’s t see what you need to know about the payday loan.
The Payday Loan
The payday loan is a short-term loan, and this means that you can take it for a short period, usually a month. The companies that offer these types of loan advertise them as funding for making an unexpected purchase that can arise at the end of the month, but before you received the salary.
The payday loan is arranged only over several days – no more than one month – so you can use the money for filling a gap until you receive your wage.
The Sum that You Can Borrow
Most of the financial institutions that offer payday loans won’t give you more than $1000 or the equivalent in another currency. When you make your first payday loan, you might be limited by the lender with a different sum of money. Apart from this, some lenders will accept a longer period for returning the money, but they won’t finance you with another short-term loan until you have paid everything.
How Expensive It Is
We know that there are also other alternatives to taking a payday loan, but if you use your credit card and make an unauthorized overdraft, you might pay more than the interest rate.
A payday loan can be expensive if you don’t pay it back in time because the interest rate will keep on adding to the initial sum of money. It can all start with a tiny loan, but you need to pay it in due time. Otherwise, you’ll pay extra interest and additional fees.
Many financial institutions that offer payday loans are deciding how fast the costs will add up. For example, if you have taken $100 from any of them for ten days, by the end of that period you can pay between $120. If you choose to roll over your loan for another ten days, you will have to pay about $140. It means that in less than a month, you will pay almost 50% extra to what you have taken from them.
Their calculations are so that they will always earn money from their clients because the loans are made for short-term periods.
The Interest Rate
As you certainly know, the interest rate is indeed high for the payday loan. The reason is simple – no matter what the interest rate is for the whole year (the APR), when you have a short-term loan, the interest rate (for that short period) will increase.
The calculation of the APR was not for a short-term loan, just for those loans that are spread over a few years or more. Because of this, it is hard for the customers to find out the real cost of the available loans.
Many consider that these loans are controversial because of the total sum of money that the clients have to pay back. It can be hard for those that have financial difficulties, but for those who stick to the payment plan, things can be easier compared to dealing with a bank.