Tuesday, December 18, 2007

4 Things You Must Know About Payday Loans

Payday loans are basically short-term cash loans based on the borrower's personal check. They are very popular in the United States. Here are four things you simply must know before you apply for one:

1. Understand the Annual Percentage Rate (APR). With most payday loans, finance charges generally range from $15 to $30 for each $100 borrowed. But when disclosed as an annual percentage rate, a different picture appears. The APR can range from between 390 percent to 780 percent. The truth-in-lending laws require lenders to disclose the actual cost of credit in the form of annual percentage rate. Payday loans usually have a term that is less than one year long and the APRs can be extremely high.

2. What is a rollover? It is common for majority of payday loan borrowers to renew their loan at least once. When they apply for an extension on their loan, it rolls it over to a future repayment date, which is usually the next paycheck. For each rollover, there are additional fees paid which can create a mountain of debt. In most states, unlimited rollovers are allowed.

3. Borrowing from a trusted provider. Be very cautious if your Internet payday lender gives out very little information about themselves but requires significant amounts of information from you. Be aware that email addresses and toll free telephone numbers are often likely to be the only contact information, as there is no physical address for the lender. Lenders may even ask their customers to sign an “Assignment of Salary and Wages” which gives them the authority to collect the debt through wage garnishment.

4. Know the Law in Your State: Different states have different laws governing payday loans and in a few states, hey are illegal. So do your research before you commit yourself. Many of the cases before the courts about payday loans. In a state where payday loans are legal, the fees charged are lower than in states where it is illegal. Where it is illegal, the lender will not be licensed and will charge higher fees. So it is wise to only use a lender with a good reputation to get your payday loan or cash advance. You should know that it is you who is responsible to pay the loan, so you should do your best to avoid the cycle of continuous debt.