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Get The Facts About Pay Day Loans

by Alfred Parker

If you've found yourself short on cash and need money for an emergency or other important expenses, pay day loans sound like a great, easy option. All that is typically required in order to be approved for these types of loans are a valid ID, pay stub, and valid bank account. Most lenders will give borrowers sums of several hundred to potentially thousands of dollars, and it is often given in cash. But many borrowers of these types of loans are not aware of the facts about how the pay day loan process works. 

Facts and Figures

  • Approximately 12 million people borrow money from pay day loans with a total dollar amount borrowed of $50 billion each year.
  • Rates on an average pay day loan can be around 35 percent more than most credit cards, and as much as 80 times more than the average mortgage or car loan.
  • An example of a typical payout on a $300 pay day loan is $800 once interest has been applied.
  • The average "low" interest rate on a pay day loan can be about 197%, and the highest has been found in Mississippi and Wisconsin, at a rate of over 570%.
  • Legislators are currently working on new laws that would put a cap on interest rates for pay day loans.

For Borrowers

If you find yourself in a situation where you need money quickly, payday loans may be a good option if you know you can repay them quickly. The problem with these types of loans is their exorbitantly high interest rates that often trap borrowers in a cycle where they simply cannot repay the loan in full. The interest is so high that most people do little more than pay just the interest on the small loan and continue paying on it for a long time.

While not all pay day lenders are bad, and the option is not always negative for those who may not have an alternative, it is essential to understand the importance of paying the loan back as soon as possible. Most of these types of loans have such short terms that they last only about a week or two. Many borrowers find themselves in debt for just one small loan for almost an entire year. Be sure to read all terms and conditions of a pay day loan you're applying for before you opt to go that route.