How much does a Payday Loan cost?
A payday loan is without question the most expensive loan that you will ever take out. Most people really have no idea how much a payday loan will actually cost. It is this high cost of payday loans that leads people into trouble with them. By the time they pay back the loan with all the interest and fees pretty much their whole pay check is gone. This then requires them to take out another loan and the vicious circle begins.
The cost of a payday loan varies depending on where you take out the loan. Some states have strict regulations over the amount of interest that can be charged while others have virtually no rules at all. The result is that the amount that a loan will cost you will depend on the rules in that state. You can be assured that they will charge you as much as they can get away with. In most cases you will find that the annual interest rate on a payday loan is more than four hundred percent. In many cases this is true even in states that restrict the total amount of interest.
Since most states have rules about the amount of interest that can be charged the payday loan companies have had to find another way to make money. In most cases the way that they do this is by charging fees in addition to the interest. The most common is a check cashing fee. When you take out a payday loan you normally have to leave a post dated check with the lender. When the loan comes due they will cash the check and charge a fee for this. Usually this fee is more than the actual interest that was charged.
The check cashing fee has been a fairly common practice in the payday loan industry but this is starting to change. There have been quite a few lawsuits filed in recent years claiming that these fees are in fact interest and that they exceed the legal maximum amount. In general courts have ruled this way and it has forced payday loan companies to stop collecting this fee. While this has happened in a few states in most it is still common to encounter the check cashing fee which significantly increases the cost of a payday loan.
One thing that is starting to change in the payday loan industry is that they are at least starting to make it clear how much a payday loan will cost. Most states have now passed laws that require that any signage in the store clearly display the total cost for a loan. While the cost is still very high at least this way the consumer knows how much it is going to cost. Regardless payday loans are still very expensive and should really only be used as a last resort and even then very cautiously.