What are Payday loans and how they can be very expensive

By Joel Teo

All Rights Reserved 2005

The media has been telling people about how easy it is to
get a payday loan where you can get an unsecured until your
next payday. What most people do not realize until it is too
late is that a payday loan is actually a very expensive form
of credit. This article would therefore explain how payday
loans work and why they can be very expensive for the
borrower.

Payday Loans are unsecured loans which charge high interest
for short periods of lending. Many people seem to flock to
them to tide over their credit card debts until their next
payday thus the name. Other names for payday loans include
cash advance loans, check advance loans or deferred deposit
check loans.

What usually happens when a borrower signs up for a payday
loan is that they write a personal check to the lender for
the amount plus a fee. The company then gives the borrower
the amount of the check less the fee. This fee is usually a
portion of the loan sum.

Thus we can see that a payday loan secured by a personal
check is a very expensive form of credit. A simple loan of
$100 would cost you $115 for 14 days and depending on your
contract, it may then increase to $160 later if you choose
to roll over the loan. It would therefore be prudent of the
borrower to choose a lender of a payday loan that charges
you the least annual percentage rate (APR) or in other words
the cost of credit provided to you on a yearly basis.

In conclusion, payday loans while popular, represent a very
expensive form of credit. If you should decide on taking up
a payday loan, you should consider spending some time
shopping around and looking for the payday loan finance
company with the lowest APR so as to reduce the amount of
fees you would have to pay come your next payday.

About the Author

Learn about payday loans and debt reduction in our
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