FAQs on Payday Loans and Their Interest Rates

What are payday loans?

Payday loans are loans that are taken by the borrower to cover his or her expenses till the next pay day. These loans are also known as pay check advances and payday advances. Loans that are availed in this way are very common in the United States, and the rules and regulations differ from state to state. Payday advances are usually availed over a two week period.

Where can I get payday loans?

You can avail payday advances from a payday advance store. The lender store will give you cash, which will usually have to be repaid within two week's time. You will have to give them a post dated check for the payment date, and usually, you will have to go there personally, to clear off the loan. In case you do not go personally to clear off the debt, the lender can cash in the check at the bank. You can even get payday advances from lenders on the internet, where you will be required to give them all your details, including the social security number.

What are the interest rates on payday loans?

Payday loans are extremely short-term loans. And for this reason, these loans come with high interest rates. Typically in the United States, the rates range from 15 percent to 30 percent for a two week period. If the same loan is taken annually at the same rate, you would have to pay about 390 percent to 780 percent interest on the amount! While this may be a very high interest rate, considering the fact that you are getting a payday loan for a period of two weeks, it is still reasonable. For example, if a borrower takes a payday advance for an amount of $500, then the interest that he would have to pay on the amount for a period of fourteen days would be $75, making it a total of $575.

The borrower has two options for repayment, which are either through a post dated check or in person, by cash. In some states, you can even extend your loan. It is called 'flipping the loan'. For example, you could pay off the amount of $575 and immediately take another loan for $500 for another two weeks. Payday loans may come at high rates of interest; but if you are in need of money urgently, then this may be your best option.