Payday Loans are blasted throughout the personal finance world, to be avoided at all costs, but what exactly is a payday loan?
What is a Payday Loan?
According to The Payday Place, a pay day advance is,
a loan that can get you a sum of money (usually a few hundred dollars) to tide you over until your next pay date.
Seems reasonable…who hasn’t been low on cash a few days before a payday? Payday Loans usually come with very little, to no, underwriting. The Federal Trade Commission states that it is simply “… secured by a personal check or paid by electronic transfer.”
If there is no basic underwriting the lenders are taking a huge risk, and as with anything in a capitalistic society, if there is a huge risk there will be massive costs. Payday Loans come with huge costs.
What does a Payday Loan Cost?
It doesn’t matter if you are doing a payday loan comparison using multiple lenders the costs associated with these types of loans are usurious at best and egregious at worst. The Missouri Attorney General’s Office provides us with a very useful calculator:
So on a $400 loan for 7 days with $15.50 of upfront free you will be paying 806% effective APR. JEBUS! If you are in need of cash, there has got to be some alternatives!
Any experiences with payday loans?