Why a payday loan has higher interest than a bank personal loan

Ever wondered why a payday loan interest rate is higher than a bank's personal loan The truth is, payday loans don't have an interest rate... instead a fee is charged.

Why is a payday loan interest rate higher than a bank personal loan?

A payday loan is a short term, high risk loan, and is offered to anyone with no credit checks. Generally, payday lenders do not charge an interest rate, but instead charge a "flat fee" based upon the loan amount and the date the loan is repaid. Because of the lender's high risk and the short term of the loan, by comparing the fee to that a typical bank personal loan, the interest rate calculation is higher.

Typically, payday loans are short term advances which are due on the following payday, unless the payday is four or less days away from the loan date. In such instances, loan repayment becomes due on the subsequent payday, with a maximum loan term of 16 days.

A payday loan charges a flat fee, which is fixed per loan amount. This causes the Annual Percentage Rate (APR) to vary depending on the number of days between the date the payday loan was activated and the date it was repaid. There is no refund of fees for early repayment.

Payday loans are short term advances which recipients should repay quickly. Although payday lenders charge a flat fee, they must provide calculations as to their interest rate. Due to various Truth-in-Lending laws, disclosures must be expressed as an Annual Percentage Rate (APR), or the cost of the credit advanced expressed as an annual rate. This requirement provides uniformity among various lender resources, so borrowers can compare rates.

Most payday loan lenders require an active checking accountFree Reprint Articles, but some will offer a bank savings account payday loan. And there are lenders who offer a no fax payday loan.

Finding The Right Payday Loan

Also look for a payday loan site that is professionally designed and managed, run by a real company that understands the business and markets it works in.

All payday loan companies that provide cash payday loans must have a state license. Certain states don’t allow payday loans, so they will not issue a license to any company in that state for that purpose. When looking at a particular payday loan lender you should feel free to e-mail them at their contact information and ask for information regarding their state lending license. For example, the lending institution for Personal Cash Advance is located in South Dakota. The company is officially licensed by the State of South Dakota. When they issue a payday loan contract with a client, it is deemed to take place in South Dakota, regardless of where the client or his/her bank resides. Therefore the payday loan contract is bound by the laws of South Dakota.

Security is also a major concern when shopping for the right payday loan. When a client completes the Personal Cash Advance application page, the connection will be “SSL” which stands for Secure Socket Layer. Secure Socket Layers provide the best means of encryption available to commercial websites today. The personal data stored the data on our computers is also encrypted with the highest standards currently available.

Ask any payday loan lender you consider doing business with about their data security. You might be surprised at their responses. If they are evasive or unclear in their answers, go somewhere else!

Finally, make sure someone is available to answer your all your application questions. Many payday loan lenders leave you wondering what’s going on. Although price is importantFind Article, customer service is even more important.

The Truth on the Payday Loan

For a while many Americans were relying on a payday loan to help them pay the bills and get through until payday. However, many of these services have become illegal because of the high interest rates and fees associated with them. Of course, online and in some states you can still apply for a payday loan. Here are some truths of the payday loan you might not be aware of.

Payday Loan Truth #1 The fees associated with the payday loan are astronomical compared to other types of credit. It might not seem like a lot of money if you are asked to pay a $15 fee for borrowing $100, which is an average fee among the payday loan services. However, after two weeks if you need to extend your loan it will cost you another $15, so now you are being charged $30 to borrow $100. If you can’t get the money together quickly you will find yourself paying more for the credit than you received in the loan.

Payday Loan Truth #2 Payday loan companies are required by law to disclose any fees associated with your payday loan, including finance charges and the APR. You must receive this information in writing from the payday loan center where you are borrowing money.

Payday Loan Truth #3 You are getting in worse debt, rather than out of debt, when you use payday loan services. The finance fees and APR are ridiculously high and you will be spending even more money you do not have to borrow a small amount of money to pay a bill. The better option is to talk to your bill collectors and find out if there is any way to extend a paymentPsychology Articles, or what the late fee might be. Frequently you will find your creditors can help you.