Lending

CALCULATING THE COST: CHARGES AND FEES OF A PAYDAY LOAN

Payday loans may look enticing because it offers immediate cash and low interest personal loan; however, it is also the most costly way to borrow money. If you fail to repay the loan on the first payday, a new finance charge is added and you get entrapped with the debt cycle. Within a few months, borrowers can end up owing more in interest than the original loan amount. Although payday loan charges and fees vary from lender to lender, there are still some shared common grounds that make it very costly!

Interest Rate

Payday loan interest rates range from 1.2%-30% per month. If we calculate the Annual Percentage Rate (APR) this would reach 14.4%-360% a year! Imagine getting a loan with 30% interest, if calculated annually would cost you a lot of money, not to mention other fees and charges!

Processing Fees and Charges

Other charges include paying for the documentary stamp tax. Typically, most lenders require 5%-10% processing fee and/or disbursement fee.

 

Late Payment Charges

Lenders mostly charge late payments with 5.00%-15% per month on any outstanding balance.

Rollovers

If you are unable to repay when your loan is due and you are permitted to roll-over your loan, the payday lender may allow you to pay only the fees due and then the lender extends the due date of your loan. You will then be charged another fee and still owe the original balance.

Repayment Plans

Some payday lenders allow extended repayment plans to borrowers who are struggling to repay their payday loans. This may also require a fee, depending on the lender and the requirement of the state law regarding lending.

Prepaid debit card

Other payday loans require you to use debit cards. There could be fees to add the money to the card, balance inquiry or calling customer service, fees each time you use the card and/or regular monthly fees.

Points to Ponder

            Not all lenders will be transparent enough to show you all fees and charges and how much it will cost you all in all. Therefore, always make sure to carefully read and understand the contract before signing.