Payday loans: How do they work
However a customer is applying, the decision to approve (or decline) is usually a fast one. Once proof of income and identification have been established, it’s usually just a matter of minutes before the decision comes through.
If approved, the customer will then authorize the lender to withdraw money from their checking account once the loan period is over, or hand them a post-dated signed check. Again, the repayment period is usually either two weeks or one month.
The amount a customer can borrow will be subject to two factors – how much the lender sees fit to lend without incurring a huge amount of risk and the maximum loan limits set by each state. Once the paperwork is in order, the money will be transferred to the customer, typically electronically into their checking account. This can take a matter of hours (it is usually much faster if the payday loan is applied for in person at a physical store) or sometimes up to two business days.
This is by far the most important issue to consider when thinking about taking out a short-term loan. As stated, payday loans are issued more easily than many other types of loan (mortgages, etc), but the stipulation is that the money comes at a much higher price.
It’s very unwise to arrange a payday loan as a first option, and much better to explore all the other ways to raise money before applying for one. Interest rates vary according to personal circumstances and the amount borrowed, but on average https://installmentloansgroup.com/installment-loans-me/, each $100 borrowed from a payday loan company will cost between $15 at the low end and $35 at the higher end (sometimes even much higher than this at less reputable companies).
To break that down, if a customer borrows $100 for two weeks and the charge is $15, that works out at 390% APR. Recent studies put the average cost of borrowing $100 for two weeks at $, which is a very expensive 610% APR. Continue reading