Cash Advances Are The Planet's Most Expensive Cash

If somebody mentioned that they would likely lend you $500 today if you paid back them with $5000 a year from now, would you take it? What if the repayment amount were only $2500? Would that strike you as a great deal? This may seem like an insane amount to pay back on a small loan, but that, in effect, is what thousands of consumers do every day when they sign up for a payday loan.

Payday advances, also known as cash advance or 30 day payday loans, are brief term loans that typically last about two weeks. In exchange for borrowing relatively small sums which ranges from $100-500, the borrower pays a fee that may range from $10-40 per $100 lent for the two-week loan. The borrower writes a postdated check for the borrowed sum plus the fee, which the lender might cash two weeks later.

These fees might seem fairly small, but when viewed as an annual percentage rate, they actually range to anywhere between 250-1000% per year. That's an substantial amount of interest in a world where a credit card loan at 25% is regarded as to be high. And yet, the payday loan company is thriving and there are now some 23,000 stores in America that offer some form of these 30 day payday loans.

Why do people sign up for such loans? The primary factors are convenience along with a lack of better alternatives. These stores are now so common that there are often a number of of them on a single block. They don't do credit report checks and they will lend cash to pretty much anyone with a steady job. And the borrowers tend to be individuals who do not have access to other borrowing choices, such as credit cards, buddies with money or a local credit union that offers short 30 day payday loans.

Defenders of these monetary products say that they're simply providing a product that the public wants. That may very well be true, as these companies are doing extremely well. What remains to be answered is whether or not the public really wants to borrow money at 500% per year. In all likelihood, they are performing so only because they cannot discover a less costly option. Anyone who needs a short term loan is more than welcome to go to a payday loan store to obtain one. But any potential borrowers ought to realize that they making use of one of the planet's most expensive forms of lending.

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