Unfortunately, with a difficult economy, some people need a little extra cash from time to time. Unexpected expenses can make it impossible to make it to your next paycheck without a little assistance.

If you have poor credit, your only option may be to consider a cash advance. Advances in technology can make it easy to get a faxless payday loan. These loans are easy to apply for.

Before you take out a payday loan, make sure you consider two important things.

First: You need to understand how much payday loans cost. Payday lenders, like other lenders in the U.S., must disclose the “Annual Percentage Rate” (or “APR”) of each loan. The APR is a way for you to compare two different loans to each other. The loan with a higher APR is more expensive. Payday lenders typically charge between $10 to $30 for each $100 borrowed. When disclosed as an annual percentage rate, this can range from around 390 percent to 780 percent.

The APR is calculated by a formula that takes into account the amount the lender is charging you, the amount you are borrowing, and the length of the loan. It breaks down all the costs of the loan, including the interest rate, and that rate is known as the annual percentage rate. On a 30-year fixed-rate loan, the APR is the actual annual cost of the loan if you make 360 payments. Since payday loans are typically short term loans, the APRs can be quite high.

Don’t use the APR of a payday loan to compare with an APR of a mortgage (a long-term loan). Use APRs to compare different payday loans of equal lengths. Use it to decide Which lender is going to give you the best loan rate. Here are two examples to show how to use the APR to decide which payday loan is a better deal.

Example One: If you are going to borrow $200, the lender is charging you a fee of $30, and the loan is due to be repaid in two weeks, the APR is 782%.

Example Two: If another lender is going to charge you a fee of $20 for the same $200, two week loan, the APR will be 521%.
Obviously, the second lender is a better deal. Use a payday loan calculator to figure out which loan is cheapest.

Next, before you take out a payday loan, you need to understand what a “rollover” is. Most payday loan borrowers renew or rollover their loan at least once. When a borrower files for an extension on their loan, it effectively rolls it over to a future repayment date which is the next paycheck. Additional fees are paid for each rollover which can create a seemingly endless cycle of debt. Many States allow unlimited rollovers.

Before you take out a payday loan, make sure you will have enough money to repay the principal in its entirety on the first due date. Do not get sucked into an endless cycle of rollovers, as you will end up in a worse situation than you are currently in.

This entry was posted on Tuesday, December 9th, 2008 at 9:26 am and is filed under Uncategorized. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

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