Payday Loans are known by many names. It’s called a small dollar loan, salary loan, short term loan, cash advance loan, and even a payroll loan. Although this can be referred to a certain amount of money provided with the help of a prearranged line of credit, like a credit card, they are not exactly the same. The amounts borrowed as a Payday Loan is generally small, for instance $500, and the borrower will need to have previous employment and payroll records.
Interest Rates of Payday Loans
The interest rates charged would vary. Different countries and different federal systems have certain legislation in place so as to prevent usury. Some states and provinces limit the annual percentage rate charged to a borrower. Some jurisdictions have very few restrictions implied by lenders and in some cases payday loans are not even allowed given the chances of the loan being misused and not being able to pay back on time.
For a 14-day loan, for a $15 charge per $100, the interest rates could be anywhere from 400 percent to less than $4000 percent.
Alternatives to Payday Loans
If not a payday loan,there are plenty of other options. For instance, credit union loans and pawnbrokers offer loans for a slightly higher amount with lower interest. However, these loans come by with inflexible terms and generally take a longer time for approval, unlike payday loans, which come in an instant. Direct loans from friends and family, or auto pawn loans are other examples.
Comparisons by payday loan lenders
Generally, for obvious reasons, payday lenders do not make a comparison of their interest rates to mainstream lending interest rates. In its place, they compare their fees to the late payment fees, penalty fees or any other fees that needs to be paid by the borrower if the situation arises.