In recent years, payday loans companies have made a fortune as their financial products became more popular. This was due to the recession and the lack of financial education around the world, especially in the US and UK. People who failed to plan for emergencies or simply had no savings left turned to payday cash loans; in most cases coming with a huge burden of massive interest rates. Although these products are designed for short term, some of the payday loan interest rates are over a thousand percent a year; making easy money for the companies offering them. The increasing regulation has now made companies disclose all charges and interest rates before customers sign the agreement, still there are a few things to be aware of when shopping around for cash loans.
Annual Interest Rates of Payday Loans
Most of the companies disclose their annual rates, and although they seem high, it might only mean a few extra dollars in case someone borrows a small amount for a month. However, not many people understand that these annual interest charges are also based on the income, security and the status of the company. It is better to concentrate on the cost of borrowing than the interest rate. Getting a hundred dollars for a few weeks is still not going to cost more than a couple of extra bucks in interest.
There are sometimes additional interest charges added to the payday cash advance loans when the customer misses a payment or it arrives late. Apart from the late charges, this can also be a substantial amount. That is the reason why many of the critics of cash loans are calling for a regulation. People should be aware of the consequences of late payment prior to agreeing to the finance. Checking that they are able to make the payments in time is essential, and they need to be warned about the dangers.
Calculate with Monthly Payday Loan Interest Rates
Instead of looking at the annual rates of payday loans, customers should work out the monthly or daily interest. Some of the companies do disclose this information, however, others do not. It is evident that the longer the customer uses the money and the more they borrow the higher the interest charge would be. The danger of these finances is that they do not involve a credit check, and therefore are made available for high risk borrowers. The reason for the high payday loan annual rates is that they include the risk of non-payment. Many people in these groups of the society simply do not know how to work out the daily or monthly interest rates and find themselves in trouble.
Apart from the payday loan interest rates, there are further costs associated with the agreements. Application fees, arrangement and transaction charges are often added to the amount of loan, which means that customers get charged interest on a higher amount. One way to avoid this would be to allow people to pay the charge in advance, but when someone needs cash urgently, it is not likely that they could spare twenty dollars to save some money on the payday loan interest rates.