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Payday Loans So Expensive

Usually people are confused since they are used to bank loans. They see the APR in comparisons to bank loan without considering the nature of both loans. Payday loans are personal loans with a short-term commitment. Lenders will only lend a small amount, usually one third of your pay. Due to this very nature of the payday loans, their annual charge become gigantic despite the fact that these loans are not expensive when viewed in the right time-frame and amount borrowed.

Payday loans are unsecured loans. This means that borrower does not have to provide anything for collateral security. This increases the risk at the lender’s side, which gets the reward for risking the money by charging high interest rate and fee.

People with bad credit can also get payday loans. This means that lenders do not even have credit history to rely on. The only thing lenders have is your pay. Lender issuing a loan will ask you to provide a proof of your regular job and pay. It will only loan out the amount that you can afford to pay, known as ‘responsible lending’. Since most payday lenders follow this principle, they ensure that people with ability repay are the ones getting the loan. Even if the interest rate and APR is high, it should not affect the borrower as long as the lender practices ‘responsible lending’.

Remember, every loan is expensive. With payday loans, you pay one time fixed fee that can look massive when computed along with interest rate over the period of a year. Since this makes Apr, people are often confused. In fact, you pay the fixed fee with almost every loan. Since regular loans are long-term, you do not have to multiply the one-time fixed fee with anything to get annual charge. However, payday loans come with a short repayment date so extending it to a year would mean computing the fixed fee over a period it was not intended for. To get the clearer picture, you should only check the rates for the period amount is borrowed.