The Payday Cash Loan - Interest Rates Versus Flat Fees
Written by: Carrie Reeder
More and more cash advance lenders are charging flat fees
instead of interest rates. This has been in response to
increased state regulation. By charging a flat fee, lenders can
avoid some of the caps put in place by some states.
Comparing Interest Rates
Interest rates for payday loans are typically higher than other
forms of credit since they are small amounts and have a higher
risk level. Most online lenders will still use interest rates to
determine your loan charge. You may also have to pay a service
fee, although most cash advance companies will waive this for
first time borrowers.
The other interest rate to look at is the APR (annual percentage
rate). All lenders, whether they charge by an interest rate or
flat fee must disclose this through their website and loan
agreement. The point of an APR is to give you a way to make
comparisons. However, if you are like the majority of borrowers,
you will pay back you loan in 21 or less days and not pay such a
high interest charge.
Looking At Fees
Because some states have placed more limits on cash advance
companies, lenders are charging fees rather than interest rates.
By doing this, they avoid "usury" laws.
You can still use the APR to make comparisons with these types
of companies. You can also divide the fee into the loan amount
to get a percent. For instance if the was $18 for a $100 loan,
the fee would be 18 or 18%.
What You Should Know
When you are comparing cash advance companies, you want to be
comparing like numbers. That is why APRs can be so helpful. You
also want to look at the payment plans and make sure they are
equal. Besides loan costs, also look at other fees for extending
the loan or for late payments. Also, be sure you can change the
payment plan if you can't make immediate payment on your payday.
If you think you can't repay your loan by payday, you may want
to take a look at other forms of credit. A personal loan or
credit card may offer better long term rates.
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