Payday Loans and The Reality Behind High Interest Rates

January 11th, 2012 by admin

payday loans, online payday loan, online payday loan

Payday loans have been accused of charging an exorbitantly high rate of interest. This intimidates the borrower and they fear for their financial stability and the chances of spiraling into debt. Sometimes these fears result in payday loan complaints that are lodged by customers. In reality the interest rates are not as overbearing as the critics make it sound. Read on to find out more.

 

Tenure of Payday Loans and Interest Rates

 

Regardless of whether you take a traditional payday loan or an online payday loan, the tenure of this kind of loan is really short. The tenure of the loan could be a couple of weeks at the max. These loans come into play when a borrower needs urgent cash before getting the next pay check. Hence the interest rate does not build up over months or years. From this stand point the interest amount will not cause a dent.

 

Presentation of the Interest Rate

 

The way interest rates are presented makes it look like an unreasonable amount. For instance, an APR of 391% will set your hearts racing. But if you were to talk about the same APR in terms of dollars, then you land up spending $15 on a loan of $100. Even if the loan amount increases to say a $300 you will be paying $45 as interest. Hence you need to assess the truth behind interest rates before paying heed to payday loan complaints.

 

Interest rate and Roll Overs

 

Roll overs on payday loans could lead you into major financial crisis. Hence it is imperative that you pay back the loan on time. It could be an online payday loan or a traditional retail payday loan but the consequences of faltering on the payback period could land you in trouble. The high interest rates and roll overs are indeed a deadly combination.

 

Payday Loans and Bank Loans

 

Another point that needs to be understood is that the high ARP is not just charged by online payday loan lenders but also by banks and credit unions. You many also find that you can get low interest rates in an online payday loan market as the competition is high.

 

Lenders make it easy for the customers to take a loan on the grounds that they will pay back the loan on time. If the customer take a loan and pays it back on time then there will be no issues related to high interest rates. This will also reduce the incidence of payday loan complaints.

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