Why are Payday Loans Expensive?

As a rule, the interest rate for a two-week payday loan is about 730% annually depending on the state you live in, compared to the ten to fifteen percent interest rates charged at banks, trusts, credit unions, and other traditional financial companies.

Simply put:

To receive a $200.00 dollar loan, you must write a check to the payday lender in the amount of $256.00 dated for two weeks away, and pay charges and interest in the total of $56.00, which is almost a quarter of the amount you requested to borrow in the first place.

These are the most expensive short-term loan types, and should be avoided, except when absolutely an emergency.

Unfortunately, these lenders play on the fact that people need money, and they need that money now, as it is an emergency, so they make it as easy as possible for you to borrow that money. Heck, you can even apply online from your easy chair and never have to go out and talk to anyone in person.

The reason these loans are so expensive is that they are borrowed at a time when the customer is cash strapped and desperately in need of money to meet one obligation or another. Because they are so quick and require no credit check or collateral it is easy to go online, complete the application and have the money in your pocket in under twenty-four hours, but what happens when it comes time to pay and because you shorted next week’s pay check, you cannot make your bills and meet your loan obligations?

You are encouraged to take out another loan and roll the current one that you cannot pay into the second loan with additional charges and more interest. There are many people with payday loans from different lenders and are slowly bankrupting themselves.

It should also be noted that most people who use payday loans have five or more payday loans each year...so what could you have purchased if you didn’t pay the charges and interest on each loan.

For lenders it is very profitable and lenders have grown rapidly over the last ten years. These same lenders are getting around state laws, each state has its own laws regarding payday loans, by promoting and doing their business online, which is why so many companies are now open offering these expensive payday loans.

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