By Frank Jones on January 7, 2011
Some basic information about payday loans will leave you scratching your head and wondering why these exist in the marketplace in the first place. Upon further examination you will quickly arrive at the conclusion that borrowing money from friends and family, although still a bad idea, is better than considering a payday loan. Should you already find yourself caught in the payday loan cycle, there are several online guides which can help get you back on budget.
Amount
Payday loans are a very short-term type of loan which only lasts for a few days or perhaps weeks. Additionally, they are only for amounts between $100 - $1000. Typically, this means that whatever financial difficulties you are having before you take out a payday loan, they will still be waiting when it comes time to repay the loan. Many people find themselves in a constant cycle of using one payday loan to repay the last. The best way to get out of this cycle is to never let it begin and avoid payday loans entirely.
Interest
Many payday loans found online will come with ridiculously high interest rates. A great example taken from a previous Payday Loans article states, “A $100 payday loan lasting eight days with an 18% interest rate has an APR of 821%!” Interest rates on payday loans, when converted to standard APR (annual percentage rate) will range between 390% - 780%.
Legality
Although many states have passed laws which do not allow for triple digit interest rates, payday loans made online may originate in another state which does not have these same laws. For this reason many states have moved to end payday loans in all forms. Several examples include recent legislation in North Carolina and Massachusetts. Additionally, states have pursued specific companies recently, such as Smith Haynes & Watson Collection Agency. Lastly, the Consumer Federation of America has also spoken out against payday loans by providing information to consumers.
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