Here’s how a payday loan works. Payday loans are a form of cash advance on your future paycheck. The borrower asks for a loan for up to four weeks and provides the required documentation, often proof of employment and identification. In return for the payday loan, the borrower gives the lender a postdated check for the amount of the loan plus any fees.
Your payday loan interest rate represents how much the loan is going to cost you. Your payday loan interest rate is key to figuring out the loan’s annual percentage rate (APR). The APR is all the costs of the loan (including fees and the payday loan interest rates) charged by the lender for the length of the loan. Payday loan interest rates often lead to a high APR because they are, well, short term. As an aware consumer, you need to pay attention to payday loans interest rates and APR to decide what loan to accept.
For example, say you borrowed $200 for two weeks with a fee ranging from $15 to $30 per $100 borrowed. You write a $240 postdated check and receive $200 in cash. This transaction will result in an APR of at least 390%.
Other how to choose a payday loan tips include knowing the answers to these questions:
-How much will the payday loan cost me?
-What is the period of time the payday loan is designed for?
-How many times am I allowed to extend this payday loan?
-What amount will be deducted from my checking account on my due date?
Also remember, payday loan vendors must comply with Federal laws. If a payday loan vendor discriminates against you or won’t put the offer in writing, contact another lender.